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OCTOBER 2021
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes
policies to protect the global financial system against money laundering, terrorist financing and the financing of
proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money
laundering (AML) and counter-terrorist financing (CFT) standard.
This document and/or any map included herein are without prejudice to the status of or sovereignty over any
territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Citing reference:
FATF (2021), Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers,
FATF, Paris,
www.fatf-gafi.org/publications/fatfrecommendations/documents/Updated-Guidance-RBA-VA-VASP.html
Acknowledgements
This updated Guidance document is based on the work of the following Project Team members and the
extensive input by the FATF Global Network of FATF Members and FATF-Style Regional Bodies,
together making up more than 200 jurisdictions. The guidance also benefited from consultation with a
range of private sector stakeholders and other representatives from the virtual asset and VASP community.
The work for this guidance was led by Habuchi Takahide (Financial Services Agency, Japan) and Jon
Fishman and Sandra Garcia (Department of the Treasury, United States of America) with Ken Menz and
Tom Neylan from the FATF Secretariat. The Project Team received significant contributions from Evan
Gallagher (AUSTRAC, Australia), Amr Sayed Rashed (Egypt Money Laundering and Terrorist Financing
Combating Unit), Mirzosharif Sharipov (Eurasian Group Secretariat), Gabriel Hugonnot and Jon Isaksen
(European Commission), David Sabban (ACPR, France), Pierre Offret (Minister of the Economy and
Finance, France) and Pierre Subiger (Financial Markets Authority, France), Fabian Rieger (Ministry of
Finance, Germany), Elad Wieder (Money Laundering and Terror Financing Prohibition Authority, Israel),
Francesca Picardi (Ministry of Finance, Italy), Kawada Yuji and Matsuzawa Arisa (Financial Services
Agency, Japan), Ricardo Cacho (Secretariat of the Treasury and Public Credit, Mexico), Rachel Huen and
Evadne Ong (Monetary Authority of Singapore), Annette Frésard and Giulia Mariani (FINMA,
Switzerland), Vincent Cottier and Melanie Friedli (Federal Department of Finance, Switzerland), Caroline
Horres (Department of the Treasury, United States of America) and Val Szczepanik (Securities and
Exchange Commission, United States of America),
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UPDATED GUIDANCE: A RISK-BASED APPROACH TO VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS 3
Acronyms
AEC Anonymity-Enhanced Cryptocurrency
AML Anti-Money Laundering
CDD Customer Due Diligence
CFT Countering the Financing of Terrorism
CPF Counter-proliferation financing
DApp Decentralised or distributed application
DeFi Decentralised finance
DNFBP Designated Non-Financial Business and Profession
EDD Enhanced due diligence
ICO Initial Coin Offering
FI Financial institution
FIU Financial intelligence unit
ML Money Laundering
MSB Money Services Business
MVTS Money or Value Transfer Service
NFT Non-fungible token
OTC Over-the-Counter
P2P Peer-to-Peer
PEP Politically exposed person
PF Proliferation financing
RBA Risk-Based Approach
SRB Self-regulatory body
STR Suspicious transaction report
TF Terrorist Financing
VA Virtual Asset
VASP Virtual Asset Service Provider
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4 UPDATED GUIDANCE: A RISK-BASED APPROACH TO VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
Executive Summary
In October 2018, the Financial Action Task Force (FATF) adopted changes to its
Recommendations to explicitly clarify that they apply to financial activities involving
virtual assets; FATF also added two new definitions to the Glossary: “virtual asset”
(VA) and “virtual asset service provider” (VASP). The amended FATF
Recommendation 15 requires that VASPs be regulated for anti-money laundering and
countering the financing of terrorism (AML/CFT) purposes, that they be licensed or
registered, and subject to effective systems for monitoring or supervision.
In June 2019, the FATF adopted an Interpretive Note to Recommendation 15 to
further clarify how the FATF requirements should apply in relation to VAs and VASPs,
in particular with regard to the application of the risk-based approach to VA activities
or operations and VASPs; supervision or monitoring of VASPs for AML/CFT purposes;
licensing or registration; preventive measures, such as customer due diligence,
recordkeeping, and suspicious transaction reporting, among others; sanctions and
other enforcement measures; and international co-operation.
The FATF also adopted a first version of this Guidance1 on the application of the risk-
based approach to VAs and VASPs in June 2019; the Guidance was updated in October
2021. It is intended to both help national authorities in understanding and developing
regulatory and supervisory responses to VA activities and VASPs, and to help private
sector entities seeking to engage in VA activities, in understanding their AML/CFT
obligations and how they can effectively comply with these requirements.
This Guidance outlines the need for countries and VASPs, and other entities involved
in VA activities, to understand the money laundering and terrorist financing (ML/TF)
risks associated with VA activities and to take appropriate mitigating measures to
address those risks. In particular, the Guidance provides examples of risk indicators
that should specifically be considered in a VA context, with an emphasis on factors
that would further obfuscate transactions or inhibit VASPs’ ability to identify
customers.
The Guidance examines how VA activities and VASPs fall within the scope of the FATF
Standards. It discusses the five types of activities covered by the VASP definition and
provides examples of VA-related activities that would fall within the definition and
also those that would potentially be excluded from the FATF scope. In that respect, it
highlights the key elements required to qualify as a VASP, namely acting as a business
for or on behalf of another person and providing or actively facilitating VA-related
activities.
The Guidance describes the application of the FATF Recommendations to countries
and competent authorities; as well as to VASPs and other obliged entities that engage
in VA activities, including financial institutions such as banks and securities broker-
dealers, among others. Almost all of the FATF Recommendations are directly relevant
to address the ML/TF risks associated with VAs and VASPs, while other
Recommendations are less directly or explicitly linked to VAs or VASPs, though they
are still relevant and applicable. VASPs therefore have the same full set of obligations
as financial institutions and designated non-financial businesses and professions.
1
This Guidance also updates the 2015 FATF Guidance for a Risk-Based Approach to Virtual
Currencies.
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The Guidance details the full range of obligations applicable to VASPs as well as to VAs
under the FATF Recommendations, following a Recommendation-by-
Recommendation approach. This includes clarifying that all of the funds or value-
based terms in the FATF Recommendations (e.g., “property,” “proceeds,” “funds,”
“funds or other assets,” and other “corresponding value”) include VAs. Consequently,
countries should apply all of the relevant measures under the FATF
Recommendations to VAs, VA activities, and VASPs.
The Guidance explains the VASP registration or licensing requirements, in particular
how to determine in which country/ies VASPs should be registered or licensed – at a
minimum where they were created; or in the jurisdiction where their business is
located in cases where they are a natural person. However, jurisdictions can also
choose to require VASPs to be licensed or registered before conducting business in
their jurisdiction or from their jurisdiction. The Guidance further underlines that
national authorities are required to take action to identify natural or legal persons
that carry out VA activities without the requisite license or registration. This would
be equally applicable to countries that have chosen to prohibit VAs and VA activities
at the national level.
Regarding VASP supervision, the Guidance makes clear that only competent
authorities, and not self-regulatory bodies, can act as VASP supervisory or monitoring
bodies. They should conduct risk-based supervision or monitoring, and have
adequate powers, including to conduct inspections, compel the production of
information and impose sanctions. There is a specific focus on the importance of
international co-operation between supervisors, given the cross-border nature of
VASPs’ activities and provision of services.
The Guidance makes clear that VASPs, and other entities involved in VA activities,
need to apply all the preventive measures described in FATF Recommendations 10 to
21. The Guidance explains how these obligations should be fulfilled in a VA context
and provides clarifications regarding the specific requirements applicable to the
USD/EUR 1 000 threshold for occasional transactions, above which VASPs must
conduct customer due diligence (Recommendation 10); and the obligation to obtain,
hold, and transmit required originator and beneficiary information, immediately and
securely, when conducting VA transfers (Recommendation 16) (the ‘travel rule’). As
the guidance makes clear, relevant authorities should co-ordinate to ensure this can
be done in a way that is compatible with national data protection and privacy rules.
Finally, the Guidance provides examples of jurisdictional approaches to regulating,
supervising, and enforcing VA activities, VASPs, and other obliged entities for
AML/CFT.
In October 2021, this Guidance was updated to provide the public and private sectors
with revised guidance. These revisions focused on six key areas where greater
guidance from the FATF was sought. These are to (1) clarify the definitions of VA and
VASP to make clear that these definitions are expansive and there should not be a case
where a relevant financial asset is not covered by the FATF Standards (either as a VA
or as another financial asset), (2) provide guidance on how the FATF Standards apply
to stablecoins and clarify that a range of entities involved in stablecoin arrangements
could qualify as VASPs under the FATF Standards, (3) provide additional guidance on
the risks and the tools available to countries to address the ML/TF risks for peer-to-
peer transactions, which are transactions that do not involve any obliged entities, (4)
provide updated guidance on the licensing and registration of VASPs, (5) provide
additional guidance for the public and private sectors on the implementation of the
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PART ONE:
INTRODUCTION
Background
1. New technologies, products, and related services have the potential to spur financial
innovation and efficiency and improve financial inclusion, but they also create new
opportunities for criminals and terrorists to launder their proceeds or finance their
illicit activities. The risk-based approach (RBA) is central to the effective
implementation of the revised Financial Action Task Force (FATF) International
Standards on Combating Money Laundering and the Financing of Terrorism and
Proliferation, which FATF members adopted in 2012, and the FATF therefore
actively monitors the risks relating to new technologies. The monitoring of
emerging risks, including the risks relating to new technologies, should inform the
risk assessment process of countries and obliged entities and, as per the RBA,
should guide the allocation of resources as appropriate to mitigate these risks.
2. In June 2014, the FATF issued Virtual Currencies: Key Definitions and Potential
AML/CFT Risks in response to the emergence of virtual currencies and their
associated payment mechanisms for providing new methods of transmitting value
over the Internet. In June 2015, the FATF issued the Guidance for a Risk-Based
Approach to Virtual Currencies (the 2015 VC Guidance) as part of a staged approach
to addressing the money laundering and terrorist financing (ML/TF) risks
associated with virtual currency payment products and services.
3. The 2015 VC Guidance focuses on the points where virtual currency activities
intersect with and provide gateways to and from (i.e., the on and off ramps to) the
traditional regulated financial system, in particular convertible virtual currency
exchangers. In recent years, however, the virtual asset space has evolved to include
a range of new products and services, business models, and activities and
interactions, including virtual-to-virtual asset transactions.
4. In particular, the virtual asset ecosystem has seen the rise of anonymity-enhanced
cryptocurrencies (AECs), mixers and tumblers, decentralized platforms and
exchanges, privacy wallets,2 and other types of products and services that enable or
allow for reduced transparency and increased obfuscation of financial flows, as well
as the emergence of other virtual asset business models or activities such as initial
coin offerings (ICOs) that present ML/TF, fraud and market manipulation risks.
Further, new illicit financing typologies continue to emerge, including the
increasing use of virtual-to-virtual layering schemes that attempt to further
obfuscate transactions in a comparatively easy, cheap, and secure manner.
2
Privacy wallets, also called mixing-enabled wallets, allow transfers where multiple
people’s transactions are combined into a single transfer.
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5. Given the development of additional products and services and the introduction of
new types of providers in this space, the FATF recognized the need for further
clarification on the application of the FATF Standards to new technologies and
providers. In particular, in October 2018, the FATF adopted two new Glossary
definitions—“virtual asset” (VA) and “virtual asset service provider” (VASP)—and
updated Recommendation 15 (R. 15) (see Annex A). The objectives of those changes
were to further clarify the application of the FATF Standards to VA activities and
VASPs in order to ensure a level regulatory playing field for VASPs globally and to
assist jurisdictions in mitigating the ML/TF risks associated with VA activities and
in protecting the integrity of the global financial system. The FATF also clarified that
the Standards apply to both virtual-to-virtual and virtual-to-fiat transactions and
interactions involving VAs.
6. In June 2019, the FATF adopted an Interpretive Note to Recommendation 15 (INR.
15) to further clarify how the FATF requirements should apply in relation to VAs
and VASPs, in particular with regard to the application of the RBA to VA activities or
operations and VASPs; supervision or monitoring of VASPs for anti-money
laundering and countering the financing of terrorism (AML/CFT) purposes;
licensing or registration; preventive measures, such as customer due diligence
(CDD), record-keeping, and suspicious transaction reporting, among others;
sanctions and other enforcement measures; and international co-operation (see
Annex A).
7. The FATF adopted this Guidance at its June 2019 Plenary. Following the adoption of
this Guidance and the revisions to the FATF Standards, the FATF continued its
enhanced monitoring of the VA sector and the implementation of the revised
Standards by countries. In March 2020, the FATF released its Guidance on Digital ID
to assist in identifying customers in the digital context. While this guidance
addresses Digital ID broadly, it includes useful information for VASPs. In June 2020,
the FATF completed its 12-Month Review of the Revised FATF Standards on VAs and
VASPs, which identified areas where greater FATF guidance was necessary to clarify
the application of the revised FATF Standards. Simultaneously with this report, the
FATF also released its Report to the G20 on So-called Stablecoins. This report sets out
how the revised FATF Standards apply to so-called stablecoins and considers the
AML/CFT issues.
8. In September 2020, the FATF also released a report on VA Red Flag Indicators of
ML/TF for use by the public and private sectors. In March 2021, the FATF released
its Guidance on a Risk-Based Approach to AML/CFT Supervision. While this report
addresses AML/CFT supervision broadly, it includes a compendium of information
for the AML/CFT supervision of VASPs specifically. In July 2021, the FATF released
its Second 12-Month Review of the Revised FATF Standards on VAs and VASPs. This
report found that jurisdictions had continued to make progress in implementing the
revised FATF Standards, but gaps in implementation mean that there is not yet a
global regime to prevent the misuse of VAs and VASPs for ML/TF. The report also
includes market metrics relating to peer-to-peer transactions, which are
transactions that do not involved any obliged entity, and notes that the lack of
implementation of the travel rule by jurisdictions is acting as disincentive to the
private sector to invest in travel rule solutions. The report concludes that updated
Guidance on virtual assets and VASPs will provide necessary clarity on the
application of the revised FATF Standards to aid implementation.
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9. The 12-month review report, G20 report and second 12-month review report
committed the FATF to release updated Guidance for the public and private sector
on the revised FATF Standards and their application to VAs and VASPs. In particular,
these reports set out six main areas where greater Guidance was sought. To address
these six areas, this Guidance was updated in November 2021 to (1) clarify the
definitions of VA and VASP to make clear that these definitions are expansive and
there should not be a case where a relevant financial asset is not covered by the
FATF Standards (either as a VA or as another financial asset), (2) provide guidance
on how the FATF Standards apply to ‘so-called’ stablecoins3 and clarify that a range
of entities involved in stablecoin arrangements could qualify as VASPs under the
FATF Standards, (3) provide additional guidance on the risks and the tools available
to countries to address the ML/TF risks for peer-to-peer transactions (4) provide
updated guidance on the licensing and registration of VASPs, (5) provide additional
guidance for the public and private sectors on the implementation of the ‘travel rule’
and (6) include Principles of Information-Sharing and Co-operation Amongst VASP
Supervisors. The Guidance was also updated to reflect the passage of time and the
publication of the other FATF reports, including those outlined above. The updates
to this Guidance are summarised in Annex B.
10. This updated Guidance expands on the 2015 VC Guidance and further explains the
application of the RBA to AML/CFT measures for VAs; identifies the entities that
conduct activities or operations relating to VA—i.e., VASPs; and clarifies the
application of the FATF Recommendations to VAs and VASPs. The Guidance is
intended to help national authorities in understanding and developing regulatory
responses to covered VA activities and VASPs, including by amending national laws,
where applicable, in their respective jurisdictions in order to address the ML/TF
risks associated with covered VA activities and VASPs.
11. The Guidance also is intended to help private sector entities seeking to engage in VA
activities or operations as defined in the FATF Glossary to better understand their
AML/CFT obligations and how they can effectively comply with the FATF
requirements. It provides guidelines to countries, competent authorities, and
industry for the design and implementation of a risk-based AML/CFT regulatory
and supervisory framework for VA activities and VASPs, including the application
of preventive measures such as customer due diligence, record-keeping, and
suspicious transaction reporting, among other measures.
12. The Guidance incorporates the terms adopted by the FATF in October 2018 and
readers are referred to the FATF Glossary definitions for “virtual asset” and “virtual
asset service provider” (Annex A).
13. The Guidance seeks to explain how the FATF Recommendations should apply to VA
activities and VASPs; provides examples, where relevant or potentially most useful;
and identifies obstacles to applying mitigating measures alongside potential
solutions. It is intended to serve as a complement to R. 15 and INR. 15 which
3
Note on terminology: The FATF considers that the term “stablecoin” is not a clear legal or
technical category, but is primarily a marketing term used by promoters of such coins.
Because of this, the FATF used the term “so-called stablecoins” in its report to G20. To
reflect the common usage of the term, this Guidance refers to them as stablecoins, but
this does not represent endorsement of their claims.
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describe the full range of obligations applicable to VASPs as well as to VAs under the
FATF Recommendations, including the Recommendations relating to “property,”
“proceeds,” “funds,” “funds or other assets,” and other “corresponding value.” In
doing so, the Guidance supports the effective implementation of national AML/CFT
measures for the regulation and supervision of VASPs (as well as other obliged
entities) and the covered VA activities in which they engage and the development of
a common understanding of what a RBA to AML/CFT entails.
14. While the FATF notes that some countries have implemented regulatory regimes
for VAs and VASPs, many jurisdictions have not yet put in place effective AML/CFT
frameworks for mitigating the ML/TF risks associated with VA activities in
particular, even as VA activities develop globally and VASPs increasingly operate
across jurisdictions. The rapid development, increasing functionality, growing
adoption, and global, cross-border nature of VAs therefore makes the urgent action
by countries to mitigate the ML/TF risks presented by VA activities and VASPs a key
priority of the FATF. The use of virtual assets by ransomware networks is also a
critical concern, and the growth of ransomware attacks has increased the
importance of this effort to introduce effective AML/CFT frameworks globally.
While this Guidance is intended to facilitate the implementation of the RBA to
covered VA activities and VASPs for AML/CFT purposes, the FATF recognizes that
other types of policy considerations, separate from AML/CFT, may come into play
and shape the regulatory response to the VASP sector in individual jurisdictions.
15. The FATF Recommendations require all jurisdictions to impose specified, activities-
based AML/CFT requirements on financial institutions (FIs), designated non-
financial businesses and professions (DNFBPs) and VASPs and ensure their
compliance with those obligations. The FATF has agreed that all of the funds- or
value-based terms in the FATF Recommendations (e.g., “property,” “proceeds,”
“funds,” “funds or other assets,” and other “corresponding value”) include VAs and
that countries should apply all of the relevant measures under the FATF
Recommendations to VAs, VA activities, and VASPs. The primary focus of the
Guidance is to describe how the Recommendations apply to VAs, VA activities, and
VASPs in order to help countries better understand how they should implement the
FATF Standards effectively.
16. Further, the Guidance focuses on VAs that are convertible to other funds or value,
including both VAs that are convertible to another VA and VAs that are convertible
to fiat or that intersect with the fiat financial system. It does not address other
regulatory matters that are potentially relevant to VAs and VASPs (e.g., consumer
and investor protection, prudential safety and soundness, tax, anti-fraud or anti-
market manipulation issues, network IT security standards, or financial stability
concerns).
17. This Guidance also does not address central bank-issued digital currencies. For
FATF’s purposes, these are not VAs as they are digital representation of fiat
currencies. The FATF Standards however apply to central bank digital currencies
similar to any other form of fiat currency issued by a central bank.4 Central bank
digital currencies may have unique ML/TF risks compared with physical fiat
4
Further information on central bank digital currencies is in Annex B of the FATF’s Report
to the G20 on So-called Stablecoins.
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5
See, for example, the July 2018 FATF report to G-20 Finance Ministers and Central Bank
Governors; the February 2019 FATF public statement on mitigating risks from virtual
assets; the April 2019 FATF report to G-20 Finance Ministers and Central Bank
Governors, the October 2019 FATF Statement on money laundering risks from
“stablecoins” and other emerging assets, the June 2020 12-month review of the revised
FATF Standards on virtual assets/VASPs, the June 2020 FATF report to the G20 Finance
Ministers and Central Bank Governors on so-called stablecoins, the September 2020
FATF report on virtual assets red flag indicators of ML/TF and the July 2021 second 12-
month review of the revised FATF Standards on virtual assets/VASPs.
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that VAs are becoming increasingly mainstream for criminal activity more broadly.
The majority of VA-related offences highlighted in the report focused on predicate
or ML offences, but, criminals also made use of VAs to evade financial sanctions and
to raise funds to support terrorism. The types of offences reported by jurisdictions
include ML, the sale of controlled substances and other illegal items (including
firearms), fraud, tax evasion, computer crimes (e.g. cyberattacks resulting in thefts
and ransomware), child exploitation, human trafficking, sanctions evasion, and TF.
Among these, two types of misuse stood out as the most common. These are illicit
trafficking in controlled substances, either with sales transacted directly in VAs or
the use of VAs as an ML layering technique, and frauds, scams, ransomware attacks,
and extortion. More recently, the FATF has observed that professional ML networks
are exploiting VAs as one of their means to transfer, collect, or layer proceeds.
21. The FATF’s Second 12-Month Review of the Revised FATF Standards on VAs and VASPs
noted there has been a large increase in the use of VAs to collect ransomware
payments and to commit and launder the proceeds of fraud, and the pace,
sophistication, and costs of ransomware attacks was likely to grow. VAs are a vital
tool for ransomware actors, without which their underlying crime would be much
harder to monetize. This makes effective and consistent implementation of the
FATF Standards in this area all the more crucial. The report also highlights
jurisdictional arbitrage and the associated problem of non-compliant or weakly
compliant VASPs and tools and methods to increase anonymity as the main trends
in the VA ML/TF risk landscape. Illicit actors are taking advantage of poor CDD and
screening processes within these VASPs for ML/TF purposes, which underscores
the importance of effective, on-the-ground implementation of the FATF Standards.
Tools and methods to increase anonymity in virtual asset transfers also continued
to be used and developed. The report also highlights challenges such as
decentralization and the definitions of VA and VASP, peer-to-peer transactions and
implementation, including of the travel rule.
22. The Guidance recognizes that “new” or innovative technologies or mechanisms for
engaging in, or that facilitate financial activity may not automatically constitute
“better” approaches and that jurisdictions should also assess the risks arising from
and appropriately mitigate the risks of such new methods of performing a
traditional or already-regulated financial activity, such as the use of VAs in the
context of payment services or securities activities, as well.
23. Other stakeholders, including VASPs, FIs and other obliged entities that provide
banking or other financial services to VASPs or to persons involved in VA activities
themselves should also consider the aforementioned factors. As with all customers,
FIs should apply a RBA when considering establishing or continuing relationships
with VASPs or customers involved in VA activities, evaluate the ML/TF risks of the
business relationship, and assess whether those risks can be appropriately
mitigated and managed (see Section IV). It is important that FIs apply the RBA
properly and do not resort to the wholesale termination or exclusion of business
relationships within the VASP sector without an appropriately-targeted risk
assessment.
24. In implementing AML/CFT regimes for VASPs, the FATF and jurisdictions should be
aware of the intersection and potential impact AML/CFT requirements have on
other regulatory requirements and policy areas, such as data protection and
privacy, financial inclusion, derisking, consumer and investor protection and
financial innovation.
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25. In considering the Guidance, countries, VASPs and other obliged entities that engage
in or provide covered VA activities should recall the key principles underlying the
design and application of the FATF Recommendations and that are relevant in the
VA context:
a. Functional equivalence and objectives-based approach. The FATF
requirements, including as they apply in the VA space, are compatible with a
variety of different legal and administrative systems. They broadly explain
what must be done but not in an overly-specific manner about how
implementation should occur in order to allow for different options, where
appropriate. Any clarifications to the requirements should not require
jurisdictions that have already adopted adequate measures to achieve the
objectives of the FATF Recommendations to change the form or substance of
their laws and regulations. The Guidance seeks to support ends-based or
objectives-based implementation of the relevant FATF Recommendations
rather than impose a rigid prescriptive one-size-fits-all regulatory regime
across all jurisdictions.
b. Technology-neutrality and future-proofing. The requirements applicable to
VAs, as value or funds, to covered VA activities, and to VASPs apply
irrespective of the technological platform involved. Equally, the requirements
do not give preference to specific products, services, or solutions offered by
commercial providers, including technological implementation solutions that
aim to assist providers in complying with their AML/CFT obligations. Rather,
the requirements are intended to have sufficient flexibility so that countries
and relevant entities can apply them to existing technologies as well as to
evolving and emerging technologies without requiring additional revisions.
c. Level-playing field (functional treatment). Countries and their competent
authorities should treat all varieties of VASPs, regardless of business model,
on an equal footing from a regulatory and supervisory perspective when they
provide fundamentally similar services and pose similar risks. Where their
risk profiles differ, however, the treatment may differ in-line with the RBA.
Similarly, countries should aim to keep regulation and supervision for VASPs
consistent with what exists for FIs that provide the same services and carry
similar ML/TF risks. It is an assessment of risks, based on the nature of the
products and services offered, that should guide countries in imposing
regulation and supervision, and not terminology, technology or business
model. Moreover, all countries should strive to ensure their domestic regimes
contribute to even and efficient implementation globally in order to avoid
jurisdictional and supervisory arbitrage, although there is no impediment to
countries imposing additional requirements that go beyond the FATF
Standards to respond to their own risks or policies.
26. This Guidance is non-binding and clarifies and interprets the existing Standards, but
does not change them. The Guidance does not overrule the purview of national
authorities, including on their assessment and categorization of VASPs, VAs, and VA
activities, as per the prevailing ML/TF risks, and other contextual factors. It draws
on the experiences of countries and of the private sector and is intended to assist
competent authorities, VASPs, and relevant FIs (e.g., banks engaging in covered VA
activities) in effectively implementing the FATF Recommendations using a RBA.
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Structure
27. This Guidance is organized as follows: Section II examines how VA activities and
VASPs fall within the scope of the FATF Recommendations; Section III describes the
application of the FATF Recommendations to countries and competent authorities;
Section IV explains the application of the FATF Recommendations to VASPs and
other obliged entities that engage in or provide VA covered activities, including FIs
such as banks and securities broker-dealers, among others; Section V provides
examples of jurisdictional approaches to regulating, supervising, and enforcing
covered VA activities and VASPs (and other obliged entities) for AML/CFT; and
Section VI sets out Principles for International Co-operation and Information-
Sharing amongst VASP Supervisors.
28. Annex A sets out the updated text of Recommendation 15 and its Interpretive Note,
and the “virtual asset” and “virtual asset service provider” definitions within the
FATF Glossary. Annex B sets out the changes made to this Guidance in the November
2021 update.
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PART TWO:
SCOPE OF FATF STANDARDS
29. Section II discusses the applicability of the RBA to VA activities and VASPs and
explains how these activities and providers should be subject to AML/CFT
requirements under the international standards. As described in paragraph 2 of
INR. 15, VASPs are subject to the relevant measures under the FATF
Recommendations based on the types of activities in which they engage. Similarly,
VAs are captured by the relevant measures under the FATF Recommendations that
relate to funds or value, broadly, or that specifically reference funds- or value-based
terms.
30. It should be underscored that when VASPs engage in traditional fiat-only activities
or fiat-to-fiat transactions (which are outside the scope of the virtual-to-virtual and
virtual-to-fiat activities covered by the VASP definition), they are subject to the
same measures as any other equivalent traditional institution or entity normally
would be under the FATF standards.
31. The FATF Recommendations do not prejudge any sector as higher risk. The
standards identify sectors that may be vulnerable to ML/TF; however the overall
risk at a national level should be determined by individual jurisdictions through an
assessment of the sector—in this case, the VASP sector. Different entities within a
sector may pose a higher or lower risk depending on a variety of factors, including
products, services, customers, geography, business models and the strength of the
entity’s compliance program. Recommendation 1 sets out the scope of the
application of the RBA as follows: who should be subject to a country’s regime; how
those subject to the AML/CFT regime should be supervised or monitored for
compliance with the regime; how those subject to the AML/CFT regime should be
required to comply; and consideration of the engagement in business relationships
by VASPs and other obliged entities involved in covered VA activities. Further, the
FATF does not support the wholesale and indiscriminate termination or restriction
of business relationships with a particular sector (e.g., FIs terminating relationships
with all VASPs regardless of the different risk profile among them) to avoid, rather
than manage, risk in line with the FATF’s RBA.
32. Under the RBA and in accordance with paragraph 2 of INR. 15, countries should
identify, assess, and understand the ML/TF risks emerging from this space and
ensure that measures to prevent or mitigate ML/TF are commensurate with the
risks identified. Similarly, countries should require VASPs (as well as other obliged
entities that engage in VA financial activities or operations or provide VA products
or services) to identify, assess, and take effective action to mitigate their ML/TF
risks.
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33. A VASP’s risk assessment should take into account all of the risk factors that the
VASP as well as its competent authorities consider relevant, including the types of
services, products, or transactions involved; customer risk; geographical factors;
type(s) of VA exchanged, among other factors.
34. VAs can enable non-face-to-face business relationships or permit transactions to
take place without the use or involvement of a VASP or a FI. Further, VAs can be
used to quickly move funds globally, nearly instantaneously and largely irreversibly,
and to facilitate a range of financial activities—from money or value transfer
services to securities, commodities or derivatives-related activity, among others.
These factors in VA financial activities or operations may indicate higher ML/TF
risks, and thus may require appropriate risk mitigating measures to identify or
combat relevant illicit activities such as the use of strong digital identity solutions.6
Similarly, VA products or services that facilitate pseudonymous or anonymity-
enhanced transactions also pose higher ML/TF risks, particularly if they inhibit a
VASP’s ability to identify the beneficiary. Lack of customer and counterparty
identification is especially concerning in the context of VAs, which are cross-border
in nature. If customer identification and verification measures do not adequately
address the risks associated with non-face-to-face or opaque transactions, the
ML/TF risks increase, as does the difficulty in tracing the associated funds and
identifying transaction counterparties.
35. The extent to which users can use VAs or VASPs globally for making payments or
transferring funds is also an important factor that countries should take into
account when determining the level of risk. Illicit users of VAs, for example, may
take advantage of the global reach and transaction speed that VAs provide, as well
as inadequate or uneven regulation or supervision of VA financial activities and
providers across jurisdictions, which creates an inconsistent legal and regulatory
playing field in the VA ecosystem. As with other mobile or Internet-based payment
services and mechanisms that can be used to transfer funds globally or in a wide
geographical area with a large number of counterparties, VAs can be more attractive
to criminals for ML/TF purposes than purely domestic business models.
36. In addition, VASPs located in one jurisdiction may offer their products and services
to customers located in another jurisdiction where they may be subject to different
AML/CFT obligations and oversight. This is of concern where the VASP is located in
a jurisdiction with weak or even non-existent AML/CFT controls, or where there is
a shortfall in the ability of jurisdictions to provide the widest range of international
co-operation. Similarly, the sheer range of providers in the VA space and their
presence across several, if not nearly all, jurisdictions can increase the ML/TF risks
associated with VAs and VA financial activities due to potential gaps in customer
and transaction information. This is a particular concern in the context of cross-
border transactions and when there is a lack of clarity on which entities or persons
(natural or legal) involved in the transaction are subject to AML/CFT measures and
which countries are responsible for regulating (including licensing and/or
registering) and supervising or monitoring those entities for compliance with their
AML/CFT obligations.
6
Further information on digital identity is available in the FATF Guidance on Digital ID.
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7
See paragraphs 37-41 for further information on the ML/TF risks of peer-to-peer
transactions.
8
See paragraphs 86-90 for further information about what entities have AML/CFT
obligations in a stablecoin arrangement. Further information on stablecoins, their
characteristics and broader regulatory and supervisory issues is set out in the Financial
Stability Board’s 2020 Regulation, Supervision and Oversight of “Global Stablecoin”
Arrangements: Final Report and High-Level Recommendations.
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In-line with their general obligations under the FATF Standards relating
to new technologies9, countries, VASPs and other obliged entities should
identify and assess ML/TF risks relating to stablecoins before launch
and in an ongoing and forward-looking manner, and take appropriate
measures to manage and mitigate the risks before launch. These risks
should continue to be mitigated, even after their launch, and take into
account the evolving risk if the stablecoin(s) become mass-adopted.
Peer-to-peer transactions
37. The FATF defines peer-to-peer’ (P2P) transactions as VA transfers conducted
without the use or involvement of a VASP or other obliged entity (e.g., VA transfers
between two unhosted wallets whose users are acting on their own behalf).10 P2P
transactions are not explicitly subject to AML/CFT controls under the FATF
Standards. This is because the Standards generally place obligations on
intermediaries, rather than on individuals themselves (with some exceptions, such
as requirements related to implementing targeted financial sanctions).
38. The FATF recognises that P2P transactions could pose specific ML/TF risks, as they
can potentially be used to avoid AML/CFT controls in the FATF Standards. Where
VA transfers occur on a P2P basis, there are no obliged entities involved in
preventing or mitigating ML/TF risks. While P2P transactions are also used for licit
activity, illicit actors can exploit the lack of obliged intermediary in P2P transactions
to obscure the proceeds of crime because there is no obliged entity carrying out the
core functions of the FATF Standards, such as CDD and filing suspicious transaction
reports (STR). Conversely, visibility of P2P transactions on public ledgers might
support financial analysis and law enforcement investigations, especially when
combined with other information sources, unless there are anonymity-enhancing
protocols and technologies associated with the VA.
39. The FATF's Second 12-Month Review report provides an overview of the extent to
which VAs are used on a P2P basis, based on data provided by seven blockchain
analytic companies.11 This report indicated that a potentially significant amount of
certain VAs is transferred on a P2P basis, and the share of identified illicit
transactions appears higher for P2P transactions compared with direct transactions
with VASPs. However, the high level of variation in the data provided by the
blockchain analytic companies means that there is no consensus on the size of the
P2P sector and its associated ML/TF risk. It also reveals the challenges and
limitations inherent in this kind of research with blockchain analytics, in terms of
coverage, timeliness, accuracy and reliability, even if P2P transactions are recorded
on public ledgers.
40. As such, these results underscore the need for countries to understand the ML/TF
risks related to P2P transactions and how P2P transactions are being used in their
9
See Recommendation 15 in Section III below for further information on VASP’s
obligations regarding new technologies.
10
Some VASPs may market themselves as P2P platforms. These are separate from P2P
transactions noted here and are addressed in paragraph 93. Additionally, natural persons
can be a VASP (see paragraph 58). If such a VASP is involved in a transaction, it is not a P2P
transaction.
11
See paragraphs 76-102 of the FATF’s Second 12 Month Review Report.
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jurisdiction on a dynamic basis, particularly when new types of VA enter the market
or pre-existing VAs reach mass-adoption. While the FATF has not observed a
distinct trend towards increased usage of P2P transactions so far, there remains the
potential risk that more VA transactions will move to P2P space to avoid
regulations/supervision as more jurisdictions implement the FATF Standards and
regulate and supervise VASPs. If P2P transactions were to increase to the point that
illicit activity was occurring to a significant degree in the VA ecosystem on a P2P
basis, without interacting with VASPs or other on- and off-ramps to the traditional
fiat economy, this could potentially challenge the effectiveness of implementing the
FATF Standards. Therefore, ML/TF risks related to P2P transactions should be
monitored in an ongoing and forward-looking manner. If countries determine P2P
transactions to present higher ML/TF risks necessitating additional mitigations,
they can consider the non-exhaustive list of optional measures in paragraph 105-
106 of this Guidance, on the basis of the assessed risk.
41. As part of this, countries and VASPs should seek to understand what types of P2P
transactions pose higher or lower risk and understand drivers of P2P transactions
and their different risk profiles. Relevant factors that could, depending on the design
of the VA, potentially impact the extent to which users engage in P2P transactions
include the VA’s accessibility and protocols that control the VA’s privacy,
transparency, security and associated transaction fees.. Jurisdictions need to weigh
these various factors and assess how they manifest themselves in each country to
assess risk and apply mitigating controls consistent with a RBA. The rapid evolution
of this sector means that changes in the level and nature of the risk are likely to
come quickly and to merit concerted supervisory attention.
Risk factors relating to VAs and VASPs
42. There exist ML/TF risks in relation to VAs, VA financial activities or operations, and
VASPs. In addition to consulting the previous FATF works on this subject12 and the
FATF’s general guidance on risk assessments,13 countries and VASPs should
consider the following non-exhaustive list of elements, for example, when
identifying, assessing, and determining how best to mitigate the risks associated
with covered VA activities and the provision of VASP products or services:
12
For example, the 2015 VC Guidance, 2018 FATF Risk, Trends, and Methods Group papers
relating to this topic, and FATF statements and reports relating to the ML/TF risks
associated with VAs, VA activities, and/or VASPs. Further information on VAs is also
available in the FATF’s 2020 Virtual Assets Red Flag Indicators of Money Laundering and
Terrorist Financing.
13
For example, the 2013 National ML/TF Risk Assessment Guidance and the 2019 TF Risk
Assessment Guidance.
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g. The potential ML/TF and sanctions risks associated with a VASP’s connections
and links to jurisdictions;
h. Whether the VASP implements the ‘travel rule’ or not and how effectively it
has mitigated the ‘sunrise issue’ (see Recommendation 16 in Sections III and
IV);
i. Transactions from / to non-obliged entities (e.g., unhosted wallets with no
obliged entity, VASPs in jurisdictions where they are not subject to regulation
and supervision, etc.) and transactions where at an earlier stage P2P
transactions have occurred provided that such data collection is in line with
national privacy legislation;
j. The specific types of VAs that the VASP offers or plans to offer and any unique
features of each VA, such as AECs, embedded mixers or tumblers, or other
products and services that may present higher risks by potentially obfuscating
the transactions or undermining a VASP’s ability to know its customers and
implement effective CDD and other AML/CFT measures; and
k. VASPs’ interaction with, or management of, any smart contracts14 that may be
used to conduct transactions.
FATF Definitions and Features of the VASP Sector Relevant for AML/CFT
44. The FATF Recommendations require all jurisdictions to impose specified AML/CFT
requirements on FIs, DNFBPs and VASPs and ensure their compliance with those
obligations. In the Glossary, the FATF defines:
a. “Financial institution” as any natural or legal person who conducts as a
business one or more of several specified activities or operations for or on
behalf of a customer;
b. “Virtual asset” as a digital representation of value that can be digitally traded
or transferred and can be used for payment or investment purposes. Virtual
assets do not include digital representations of fiat currencies, securities, and
14
In a VA context, a smart contract is a computer program or a protocol that is designed to
automatically execute specific actions such as VA transfer between participants without
the direct involvement of a third party when certain conditions are met.
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other financial assets that are already covered elsewhere in the FATF
Recommendations; and
c. “Virtual asset service provider” as any natural or legal person who is not
covered elsewhere under the Recommendations and as a business conducts
one or more of the following activities or operations for or on behalf of another
natural or legal person:
i. Exchange between virtual assets and fiat currencies;
ii. Exchange between one or more forms of virtual assets;
iii. Transfer15 of virtual assets; and
iv. Safekeeping and/or administration of virtual assets or instruments
enabling control over virtual assets;
v. Participation in and provision of financial services related to an issuer’s
offer and/or sale of a virtual asset.
15
In this context of virtual assets, transfer means to conduct a transaction on behalf of
another natural or legal person that moves a virtual asset from one virtual asset address
or account to another.
16
These are in relation to CDD (Recommendation 10) and wire transfer rules
(Recommendation 16) (i.e. the travel rule). See Sections III and IV below for further
explanation of these obligations.
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48. Firstly, VAs must be digital and must themselves be digitally traded or transferred
and be capable of being used for payment or investment purposes. In choosing the
terms “traded” and “transferred” the FATF intentionally created a broad, general
definition of VA, which covers a wide range of activities. This could include, for
example, the issuance of an asset to another person, exchanging it for something
else, transferring it to someone else or on behalf of someone else, changing its
ownership, or destroying it.
49. VAs cannot be merely digital representations of fiat currencies, securities and other
financial assets that are already covered elsewhere in the FATF Recommendations,
without an inherent ability themselves to be digitally traded or transferred and the
possibility to be used for payment or investment purposes.
50. For this reason, a bank record maintained in digital format, for instance, which
represents a person’s ownership of fiat currency is not a VA. If it functions as a mere
declarative record of ownership or positions in a financial asset that is already
covered by the FATF Standards, it is not a VA. However, a digital asset that is
exchangeable for another asset, such as a stablecoin that is exchangeable for a fiat
currency or a VA at a stable rate, could still qualify as a VA. The key question in this
context is whether the VA has inherent value to be traded or transferred and used
for payment or investment or, rather, is simply a means of recording or representing
ownership of something else. It bears repeating, however, that assets that do not
qualify as VAs should not be presumed to fall outside the scope of the FATF
Standards. Instead, they may fall under other kinds of financial assets, such as
securities, commodities, derivatives or fiat currency.
51. The FATF does not intend for an asset to be both a VA and a financial asset at the
same time. There may however be instances where the same asset will be classified
differently under different national frameworks or the same asset might be
regulated under multiple different categorizations. When determining if a new
digital asset should qualify as a financial asset or a VA, authorities should consider
whether their existing regime governing financial assets or their regime for VAs can
be appropriately applied to the new digital assets in question. For example, if the
asset in question is the functional digital equivalent of cash, a bearer negotiable
instrument or bearer share, authorities should consider how the mitigation
measures in the relevant regime would apply to it.
52. In instances where characterization proves difficult, jurisdictions should assess
their regulatory systems and decide which designation will best mitigate and
manage the risk of the product or service. Jurisdictions should also consider the
commonly accepted usage of the asset (e.g., whether it is used for payment or
investment purposes) and what type of regulatory regime offers the best fit. Should
a jurisdiction choose to define an asset as a financial asset as opposed to a VA,
existing AML/CFT standards and the guidance that accompanies financial assets
would apply. Consistent with the technology-neutral approach, a blockchain-based
asset that is defined as a financial asset would likely not fall under this VA-focused
Guidance. This is because the technology used is not the deciding factor in
determining which FATF Recommendations apply. Elements of this Guidance may,
however, still prove helpful to jurisdictions and the private sector and should
supplement other existing guidance in the context of the RBA. Nonetheless, every
asset for payment or investment should be subject to obligations applicable either
as a VA or another type of financial asset.
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53. Digital assets that are unique, rather than interchangeable, and that are in practice
used as collectibles rather than as payment or investment instruments, can be
referred to as a non-fungible tokens (NFT) or crypto-collectibles. Such assets,
depending on their characteristics, are generally not considered to be VAs under the
FATF definition. However, it is important to consider the nature of the NFT and its
function in practice and not what terminology or marketing terms are used. This is
because the FATF Standards may cover them, regardless of the terminology. Some
NFTs that on their face do not appear to constitute VAs may fall under the VA
definition if they are to be used for payment or investment purposes in practice.
Other NFTs are digital representations of other financial assets already covered by
the FATF Standards. Such assets are therefore excluded from the FATF definition of
VA, but would be covered by the FATF Standards as that type of financial asset.17
Given that the VA space is rapidly evolving, the functional approach is particularly
relevant in the context of NFTs and other similar digital assets. Countries should
therefore consider the application of the FATF Standards to NFTs on a case-by-case
basis.
54. The FATF reaffirms statements in its G20 report that a stablecoin is covered by the
Standards as either a VA or a financial asset (e.g., a security) according to the same
criteria used for any other kind of digital asset, depending on its exact nature and
the regulatory regime in a country.
What is a VASP?
55. As stated in the FATF Glossary, a “virtual asset service provider” is any natural or
legal person who is not covered elsewhere under the Recommendations and as a
business conducts one or more of the following activities or operations for or on
behalf of another natural or legal person:
i. Exchange between virtual assets and fiat currencies;
ii. Exchange between one or more forms of virtual assets;
iii. Transfer18 of virtual assets;
iv. Safekeeping and/or administration of virtual assets or instruments
enabling control over virtual assets; and
v. Participation in and provision of financial services related to an issuer’s
offer and/or sale of a virtual asset.
56. As with the definition of VA, the definition of VASP should be read broadly.
Countries should take a functional approach and apply the following concepts
underlying the definition to determine whether an entity is undertaking the
functions of a VASP. Countries should not apply their definition based on the
nomenclature or terminology which the entity adopts to describe itself or the
technology it employs for its activities. As set out above, the definitions do not
depend on the technology employed by the service provider. The obligations in the
FATF Standards stem from the underlying financial services offered without regard
to an entity’s operational model, technological tools, ledger design, or any other
17
See paragraph 50.
18
In this context of virtual assets, transfer means to conduct a transaction on behalf of
another natural or legal person that moves a virtual asset from one virtual asset address
or account to another.
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operating feature. To assist in illustrating the concepts of the definition, the section
below includes examples which use general terms to describe common business
models. However, these should not obscure the fact that the definition is meant to
be applied based on an assessment of whether the entity in question provides a
qualifying service, not these terms themselves.
57. Before looking at individual functions, there are a few common elements that must
be understood. As discussed in the VA definition, to avoid repetition or overlap, the
definition of VASP only applies to entities “not covered elsewhere under the
Recommendations”. It excludes FIs or DNFBPs covered elsewhere in the FATF
Standards. Jurisdictions have to apply the definition that is the most appropriate,
based on an understanding of the conceptual foundations of each definition. The
primary difference between VASPs and traditional FIs from the standpoint of this
Guidance is the application of Recommendations 10 and 16, so jurisdictions may
wish to apply the definition that provides more thorough regulatory and
supervisory coverage.19
58. The first use of the word “person” in the definition refers to the person that conducts
the relevant activity or operation listed in limbs (i)-(v) of the definition. The person
can be either a legal person, such as a company, or a natural (individual) person.
59. “Conducts” includes the provision and/or active facilitation of a service, which refers
to active involvement in the provision of activities covered under limbs (i)-(v) of the
VASP definition. It is meant to exclude ancillary participants that do not provide or
actively facilitate any of these covered activities, such as entities which provide
Internet or cloud services.
60. The phrase “as a business” is meant to exclude those who may carry out a function
on a very infrequent basis for non-commercial reasons from coverage as VASPs. To
satisfy this portion of a definition, the entity must carry out this function for or on
behalf of another natural or legal person as opposed to on behalf of itself, for
commercial reasons, and must do so on at least a sufficiently regular basis, rather
than infrequently.
61. The phrase “for or on behalf of another natural or legal person” includes carrying out
of the function in the course of providing a covered service to another person. This
person for whom or on whose behalf financial services may be conducted may also
be referred to as a “user” or “customer” of those services. This means, for example,
that an internal transfer of VAs by a single legal person within that legal person (that
is, within units of a particular company for example) would not qualify as a VASP,
unless that transfer was for or on behalf of another person in the context of
providing VASP services.
62. A person who meets these requirements will then be a VASP if it carries out one or
more of the five categories of activity or operation described in the VASP definition
(i.e., “exchange” of virtual/fiat, “exchange” of virtual/virtual, “transfer,”
“safekeeping and/or administration,” and “participation in and provision of
financial services related to an issuer’s offer and/or sale”). The coverage of each
limb of the definition is set out below.
19
These differences are in relation to CDD (Recommendation 10), to lower the CDD
occasional transaction threshold, and wire transfer rules (Recommendation 16) which
apply in an amended way to VA transfers (i.e. the travel rule). See Sections III and IV below
for further explanation of these obligations.
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20
In a multi-signature process or model, a person needs several digital signatures (and
therefore several private keys) to perform a transaction from a wallet.
21
See Recommendation 14 in Section III for further information on MVTS obligations in the
VASP context, including requirements that MVTS providers include agents in their
AML/CFT programmes and monitor them for compliance with these programmes.
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often still have a central party with some measure of involvement or control, such
as creating and launching a VA, developing DApp functions and user interfaces for
accounts holding an administrative “key” or collecting fees. Often, a DApp could be
programmed to require a user to pay a fee to interact with the DApp which is
commonly paid in VAs, for the ultimate benefit of the
owner/operator/developer/community. DApps can facilitate or conduct the
exchange or transfer of VAs. Where these DApps offer financial services, such as
those offered by VASPs, the term ‘decentralised finance’ (DeFi) is commonly used.
67. A DeFi application (i.e. the software program) is not a VASP under the FATF
standards, as the Standards do not apply to underlying software or technology (see
paragraph 82 below). However, creators, owners and operators or some other
persons who maintain control or sufficient influence in the DeFi arrangements, even
if those arrangements seem decentralized, may fall under the FATF definition of a
VASP where they are providing or actively facilitating VASP services. This is the
case, even if other parties play a role in the service or portions of the process are
automated. Owners/operators can often be distinguished by their relationship to
the activities being undertaken. For example, there may be control or sufficient
influence over assets or over aspects of the service’s protocol, and the existence of
an ongoing business relationship between themselves and users, even if this is
exercised through a smart contract or in some cases voting protocols. Countries may
wish to consider other factors as well, such as whether any party profits from the
service or has the ability to set or change parameters to identify the owner/operator
of a DeFi arrangement. These are not the only characteristics that may make the
owner/operator a VASP, but they are illustrative. Depending on its operation, there
may also be additional VASPs that interact with a DeFi arrangement.
68. Due to the global presence of the many open source projects and developmental
contributors in this space, DeFi projects are rapidly expanding in their number and
capabilities. While this Guidance aims to provide direction, countries will need to
evaluate the facts and circumstances of each individual situation to determine
whether there is an identifiable person(s), whether legal or natural, providing a
covered service. Marketing terms or self-identification as a DeFi is not
determinative, nor is the specific technology involved in determining if its owner or
operator is a VASP. Countries should apply the principles contained in the Standards
in a manner that interprets the definitions broadly, but with regard for the practical
intent of the functional approach. It seems quite common for DeFi arrangements to
call themselves decentralized when they actually include a person with control or
sufficient influence, and jurisdictions should apply the VASP definition without
respect to self-description. Countries should be guided by the principle that the
FATF intends to cover natural or legal persons who conduct the financial services
covered in the definition as a business. If they meet the definition of VASPs,
owners/operators should undertake ML/TF risk assessments prior to the launch or
use of the software or platform and take appropriate measures to manage and
mitigate these risks in an ongoing and forward-looking manner.22 In cases where a
person can purchase governance tokens of a VASP, the VASP should retain the
responsibility for satisfying AML/CFT obligations. An individual token holder in
such a scenario does not have such responsibility if the holder does not exercise
22
See Recommendation 15 in Section III below for further information on VASP’s obligations
regarding new technologies.
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23
See paragraphs 37-41 and 104-106 of this Guidance.
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24
The terminology used in this section (such as “safekeeping”, “administration” and
“ancillary services”) are used and interpreted in the context of VAs/VASPs. They should
not confused with the usage of such terms in other situations (e.g. in relation to banking
and other traditional financial instruments or services).
25
See paragraph 82.
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26
Issuance in this context means the creation of a VA, to be distinguished from the offer
and/or sale of the VA related to the issuance of that VA.
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86. For stablecoins, there are a range of the entities involved in any stablecoin
arrangement. Stablecoins may have a central developer or governance body. A
governance body consists of one or more natural or legal persons who establish or
participate in the establishment of the rules governing the stablecoin arrangement
(e.g., determine the functions of the stablecoin, who can access the arrangement and
whether/how AML/CFT preventive measures are built into the arrangement). They
may also carry out the basic functions of the stablecoin arrangement (such as
managing the stabilization function) or this may be delegated to other entities. They
may also manage the integration of the stablecoin into telecommunications
platforms or promote adherence to common rules across the stablecoin
arrangement.
87. Where such a central body exists in a stablecoin arrangement, they will, in general,
be covered by the FATF Standards either as a FI or a VASP. This is particularly the
case if the governance body carries out other functions in the stablecoin
arrangement. Such a body should therefore undertake ML/TF risk assessments
prior to the launch or use of the stablecoin and take appropriate measures to
manage and mitigate risks across the arrangement before launch.27
88. Not all stablecoins may have a readily identified central body which is a VASP or a
FI. However, it may be more likely that a party needs to exist to drive the
development and launch of such an arrangement before its release. If this entity was
a business and carried out VASP functions, this would create scope for regulatory
or supervisory action in the pre-launch phase. If there is not a clearly identifiable
VASP or FI, a country should carefully consider the risks that a given stablecoin
poses and the need for mitigation measures, if any (see, for example, the mitigation
measures for P2P transactions in paragraphs 105-106). Additionally, this is not
meant to implicate those only developing software code, but rather the persons
involved in stablecoin arrangements that conduct or provide financial services
covered by the limbs of the VASP definition.
89. A range of other entities in the stablecoin arrangement may also have AML/CFT
obligations, such as exchanges or custodial wallet services. To demonstrate this, a
hypothetical case study is set out in Box 3. It is important to note that the exact
details of any arrangement must receive independent scrutiny to make these
determinations.28
27
See Recommendation 15 in Section III below for further information on VASP’s
obligations regarding new technologies. This is also consistent with the case of "New
payment products and services (NPSS)" providers in the FATF's report on prepaid cards,
mobile payments and internet-based payment services for further information:
www.fatf-gafi.org/media/fatf/documents/recommendations/Guidance-RBA-NPPS.pdf.
28
Further details on the application of the FATF Standards to different entities in a so-called
stablecoin arrangement are set out in the FATF Report to G20 on So-Called Stablecoins.
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90. Some platforms and providers offer the ability to conduct VA transfers directly
between individual users. For such platforms, the broad reading of the definitions
above will decide whether parties to providing such a service are VASPs on a
functional basis, not on the basis of self-description or technology employed. Only
entities that provide very limited functionality falling short of exchange, transfer,
safekeeping, administration, control, and the provision of financial services
associated with issuance will generally not be a VASP. For example, this may include
websites which offer only a forum for buyers and sellers to identify and
communicate with each other without offering, even in part, those services which
are included in the definition of VASP.
91. For self-described P2P platforms, jurisdictions should focus on the underlying
activity, not the label or business model. Some kinds of “matching” or “finding”
services may also qualify as VASPs even if not interposed in the transaction. The
FATF takes an expansive view of the definitions of VA and VASP and considers most
arrangements currently in operation, even if they self-categorize as P2P platforms,
may have at least some party involved at some stage of the product’s development
and launch that constitutes a VASP. Automating a process that has been designed to
provide covered services for a business does not relieve the controlling party of
obligations.
29
The scenario included in this case study is adapted from the case study included in
IOSCO’s March 2020 report on Global Stablecoin Initiatives. It has been amended to fit the
AML/CFT context. This example is provided to illustrate obligations of persons in a
hypothetical stablecoin arrangement and is not meant to be exhaustive.
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92. The determination of whether a service provider meets the definition of a VASP
should take into account the lifecycle of products and services. Launching a service
that will provide VASP services, for instance, imposes VASP obligations, even if
those functions will proceed automatically in the future, especially if the provider
will maintain some measure of control or sufficient influence, by, for example,
setting parameters, holding an administrative key, retaining access to the platform
or collecting fees or realizing profits. The use of an automated process such as a
smart contract to carry out VASP functions does not relieve the part(ies) of
responsibility for VASP obligations. In such instances, controlling parties qualifying
as VASPs should undertake ML/TF risk assessments prior to the launch or use of
the platform and take appropriate measures to mitigate risks. This could include
effectively delegating implementation of AML/CFT obligations to another natural or
legal person involved in the platform.
93. The FATF recognises however that an expansive approach can bring practical
challenges to competent authorities in identifying which entities are VASPs and
defining their regulatory perimeter. When there is a need to assess a particular
entity to determine whether it is a VASP or evaluate a business model where VASP
status is unclear, a few general questions can help guide the answer. Among these
would be who profits from the use of the service or asset, who established and can
change the rules, who can make decisions affecting operations, who generated and
drove the creation and launch of a product or service, who maintains an ongoing
business relationship with a contracting party or another person who possesses and
controls the data on its operations, and who could shut down the product or service.
Individual situations will vary and this list is not definitive and offers only some
examples.
94. The FATF Standards, including the definitions of virtual assets and VASPs, represent
a minimum standard for countries to introduce. In line with the RBA, countries may
choose to extend their AML/CFT regimes to include other digital assets and entities,
beyond the FATF definition of virtual asset and VASP. Such a determination should
be made on the basis of a ML/TF risk assessment, with consideration of the
challenges associated with regulatory divergence.
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PART THREE:
APPLICATION OF FATF STANDARDS TO COUNTRIES AND
COMPETENT AUTHORITIES
95. Section III explains how the FATF Recommendations relating to VAs and VASPs
apply to countries and competent authorities and focuses on identifying and
mitigating the risks associated with covered VA activities, applying preventive
measures, applying licensing and registration requirements, implementing effective
supervision on par with the supervision of related financial activities of FIs,
providing a range of effective and dissuasive sanctions, and facilitating national and
international co-operation. Almost all of the FATF Recommendations are directly
relevant for understanding how countries should use government authorities and
international co-operation to address the ML/TF risks associated with VAs and
VASPs, while other Recommendations are less directly or explicitly linked to VAs or
VASPs, though they are still relevant and applicable.
96. VAs and VASPs are subject to the full range of obligations under the FATF
Recommendations, as described in INR. 15, including those obligations applicable
to other entities subject to AML/CFT regulation, based on the financial activities in
which VASPs engage and having regard to the ML/TF risks associated with covered
VA activities or operations.
97. This section also reviews the application of the RBA by supervisors of VASPs.
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P2P transactions
105. As set out in Section 2, countries should also seek to understand the ML/TF risks
related to P2P transactions and how they are being used in their jurisdiction.
Measures that countries should consider to assist in understanding the risks of P2P
transactions include:
a. conducting outreach to the private sector, including VASPs and
representatives from the P2P sector (e.g. consulting on AML/CFT
requirements concerning P2P transactions);
b. training of supervisory, financial intelligence unit (FIU) and law enforcement
personnel; and
c. encouraging the development of methodologies and tools, such as blockchain
analytics, to collect and assess P2P market metrics and risk mitigation
solutions, risk methodologies to identify suspicious behaviour, and determine
whether wallets are hosted or unhosted,30 including by engaging with
programmers/developers in this space.
106. Depending on the assessed risks associated with P2P transactions, or certain types
of P2P transactions, countries may consider and implement as appropriate options
to mitigate these risks at a national level. These measures may include:
a. controls that facilitate visibility of P2P activity and/or VA activity crossing
between obliged entities and non-obliged entities (these controls could
include VA equivalents to currency transaction reports or a record-keeping
rule relating to such transfers);31
b. ongoing risk-based enhanced supervision of VASPs and entities operating in
the VA space with a specific focus on unhosted wallet transactions (e.g., on-
site and off-site supervision to confirm whether a VASP has complied with the
regulations in place concerning these transactions);
c. obliging VASPs to facilitate transactions only to/from addresses/sources that
have been deemed acceptable in line with their RBA;
30
To date, the FATF is not aware of any technically proven means of identifying the VASP
that manages the beneficiary wallet exhaustively, precisely, and accurately in all
circumstances and from the VA address alone.
31
Such reporting requirements are similar to the reporting requirements the FATF places
on cross-border physical large cash transfers by individuals to address the associated
ML/TF risks by these types of transactions (Recommendation 32).
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32
See the FATF’s report to G20 on so-called stablecoins for further information.
33
See paragraph 40 for further information about the ML/TF risks related to mass-
adoption and P2P.
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country as well as risk mitigation strategies that account for the cross-border
element of VA activities (e.g., cross-border VA payments or transfers) and VASP
operations. Countries should periodically revisit the risk assessment basis
underpinning this decision, as the associated ML/TF risks and the ability to enforce
such a prohibition/limitation may evolve rapidly.
110. Recommendation 2 requires national co-operation and co-ordination with respect
to AML/CFT/CPF policies, including in the VASP sector, and is therefore indirectly
applicable to countries in the context of regulating and supervising covered VA
activities. Countries should consider putting in place mechanisms, such as
interagency working groups or task forces, to enable policymakers, regulators,
supervisors, the FIU, and law enforcement authorities to co-operate with one
another and any other relevant competent authorities in order to develop and
implement effective policies, regulations, and other measures to address the
ML/TF/PF risks associated with covered VA activities and VASPs. This should
include co-operation and co-ordination between relevant authorities to ensure the
compatibility of AML/CFT requirements with data protection and privacy rules and
other similar provisions (e.g., data security/localisation). National co-operation and
co-ordination are particularly important in the context of VAs, in part due to their
highly-mobile and cross-border nature and because of the manner in which covered
or regulated VA activities may implicate multiple regulatory bodies (e.g., those
competent authorities regulating money transmission, securities, and commodities
or derivatives activities). Further, national co-operation relating to VA issues is vital
in the context of furthering investigations and leveraging various interagency tools
relevant for addressing the cyber and/or VA ecosystem.
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proceeds of, or used in, or intended or allocated for use in, the financing of terrorism,
terrorist acts, or terrorist organisations, (d) or property of corresponding value”
also apply to VAs.
114. As for confiscation or temporary measures applicable to fiat currencies and goods,
law enforcement authorities should be able to request a temporary freeze of assets
when there are grounds to establish or when it is established, that they originate
from criminal activity. To extend the duration of the freeze or to request the
confiscation of assets, law enforcement authorities should obtain a court order.
115. Recommendation 5. Likewise, the TF offences described in Recommendation 5
should extend to “any funds or other assets,” including VAs, whether from a
legitimate or illegitimate source (see INR. 5).
116. Recommendation 6. Countries should also freeze without delay the funds or other
assets—including VAs—of designated persons or entities and ensure that no funds
or other assets—including VAs—are made available to or for the benefit of
designated persons or entities in relation to the targeted financial sanctions related
to terrorism and TF.
117. Recommendation 7. In the context of targeted financial sanctions related to
proliferation, countries should freeze without delay the funds or other assets—
including VAs—of designated persons or entities and ensure that no funds or others
assets—including VAs—are made available to or for the benefit of designated
persons or entities.
118. Recommendation 8. Countries also should apply measures, in line with the RBA,
to protect non-profit organisations from TF abuse, as laid out in Recommendation
8, including when the clandestine diversion of funds to terrorist organisations
involves VAs (see Recommendation 8(c)).
119. Recommendation 30 applies to covered VA activities and VASPs in the context of
the applicability of all funds- or value-based terms addressed in paragraph 111 of
this Guidance. As with other types of property or proceeds of crime, countries
should ensure that competent authorities have responsibility for expeditiously
identifying, tracing, and initiating actions to freeze and seize VA-related property
that is, or may become, subject to confiscation or is suspected of being the proceeds
of crime. Countries should implement Recommendation 30, regardless of how the
jurisdiction classifies VAs in its national legal framework (i.e., regardless of how VAs
are categorized legally with respect to the property laws of the jurisdiction).
120. Recommendation 33. The statistics that countries maintain should include
statistics on the STRs that the competent authorities receive and disseminate as
well as on the property that the competent authorities freeze, seize, and confiscate.
Countries should therefore also implement Recommendation 33 in the context of
VASPs and VA activities and maintain statistics on the STRs that competent
authorities receive from VASPs and from other obliged entities, such as banks, that
submit STRs relating to VASPs, VAs, or VA activities. As with other
Recommendations that contain funds- or value-based terms (e.g.,
Recommendations 3 through 8, 30, 35, and 38), countries should also maintain
statistics on any VAs that competent authorities freeze, seize, or confiscate,
regardless of how the jurisdiction categorizes VAs with respect to the property laws
of its national legal framework. Additionally, countries should consider updating
their STRs and associated statistics to incorporate VA-related indicators that
facilitate investigations and financial analysis.
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Licensing or Registration
123. Countries should designate one or more authorities that have responsibility for
licensing and/or registering VASPs.
124. The FATF Standards allow countries flexibility in applying licensing or registration
to VASPs. Many countries are confronting the decision of whether to fit VASPs into
an existing regime for licensing or registration or create a new one. Using an existing
regime is likely to offer countries a quicker path to implementation and will take
advantage of existing knowledge in the compliance community of how to operate
the relevant processes. Countries may find it is easier to use an existing
licensing/registration system, such as that for MVTS, to the extent that their existing
regimes are functional and appropriate for VASPs. However, a new regime could be
purpose-built for VASPs and not include legacy aspects that may not apply to VASPs.
For instance, such a regime could include greater focus on technological capacity in
AML/CFT analysis and the risks and mitigants of the VA sector that differ from the
traditional financial services sector. It is necessary to confirm in advance that the
existing system can sufficiently address the risk of VASPs. Where countries have
created new laws and regulations explicitly for VAs and VASPs, a new
licensing/registration system may make more sense. Jurisdictions should base the
nature and stringency of the requirements and the type of regime they choose on an
assessment of the different kinds of VA and VASP activity and the associated ML/TF
risk.
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134. On the basis of risk, authorities may also impose conditions on VASPs seeking a
license or registration to enable them to effectively supervise the VASPs. Such
conditions could potentially include, depending on the size and nature of the VASP
activities, requiring a resident executive director, substantive management
presence, specific financial requirements, requirements for VASPs to disclose the
registration(s) / license(s) which they hold in marketing materials, website and
mobile applications and/or requirements for VASPs to ensure authorities can
access data related to the outsourced functions, as well as to the relevant business
premises of any subcontractors.
135. Like other entities subject to the FATF Standards, VASPs should put in place
AML/CFT compliance prior to launch when designing or building a new product or
service, as it is much more difficult to do so later. Therefore, careful assessment of
risks and thorough evaluation of mitigation measures at the licensing and
registration stage is especially important. Once licensing and registration has taken
place, AML/CFT mitigations which are built into products and services should be
maintained and be the subject of supervision.
136. Importantly, jurisdictions may consider emphasizing AML/CFT requirements to
VASPs through public communication and events (i.e., education campaigns, forums
or “office hours” with the VA ecosystem). Providing certainty concerning the legal
framework through advisories or guidance is another key measure to support a
culture of compliance. Countries may also consider the incentive effect of publicity
of enforcement actions against unregistered or unlicensed VASPs.
137. Furthermore, subject to their own discretion, countries may also consider
designating all VASPs from countries which do not effectively implement licensing
or registration requirements as higher risk, so that for a VASP to deal with a
counterpart in a country without an effective licensing regime is designated high
risk activity by the supervisor and may incur additional reporting requirements
(also see the information on EDD in Recommendation 10 in Section III and on
counterparty VASP due diligence in Recommendation 16 in Sections III and IV).
138. All jurisdictions should encourage a culture of compliance with all of a jurisdictions’
applicable legal and regulatory requirements. These may address a range of policy
objectives, including those related to investor and consumer protection, market
integrity, prudential requirements, and/or national and economic interests, in
addition to AML/CFT. To that end, some jurisdictions may decide to underscore this
by not permitting VASPs to obtain a license from prudential or other authorities
which is separate from AML/CFT-related authorization. Jurisdictions should also
ensure that VASPs and authorities devote sufficient resources to their AML/CFT
compliance functions to cope with expected user and transaction volume.
139. As previously noted, it is important that ML/TF risks of stablecoins, particularly
those with potential for mass-adoption and that can be used for P2P transactions,
are analysed in an ongoing and forward-looking manner and are mitigated before
such arrangements are launched. Where a VASP or other obliged entity is proposing
to create or use a stablecoin, an assessment of the ML/TF risks and mitigation of the
risks should form part of the licensing or registration process as appropriate.
Supervisors should be especially cautious of claims that stablecoins involve no
entity that qualifies as a VASP or other obliged entity. This is especially true in the
pre-launch phase, as the process of creating and developing an asset for launch is
unlikely to be able to be automated. The potential for mass-adoption should be
included as an important factor meriting consideration in the licensing or
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registration procedure and risk assessment for all VASPs. As a general matter, the
licensing or registration procedure for VASPs and obliged entities launching, or
involved in, stablecoins should be similar to that for VAs generally.
Supervision or Monitoring
142. Recommendations 26 and 27. As discussed below, Recommendation 15 requires
countries to subject VASPs to effective systems for AML/CFT supervision or
monitoring. As set forth in Recommendations 26 and 27, paragraph 5 of INR. 15
similarly requires countries to ensure that VASPs are also subject to adequate
regulation and supervision or monitoring for AML/CFT and are effectively
implementing the FATF Recommendations, in line with their ML/TF risks. VASPs
should be subject to effective systems for monitoring and ensuring compliance with
national AML/CFT requirements. VASPs should be supervised or monitored by a
competent authority, not a self-regulatory body (SRB), which should conduct risk-
based supervision or monitoring. While SRBs should not be supervisors, SRBs and
industry groups may assist supervisors in facilitating contact, information-sharing
and outreach to the VASP sector. Supervisors should have adequate powers to
supervise or monitor and ensure compliance by VASPs (as well as other obliged
entities that engage in VA activities) with requirements to combat ML/TF including
the authority to conduct inspections, access books and records, compel the
production of information, and impose a range of disciplinary and financial
sanctions, including the power to withdraw, restrict, or suspend the VASP’s license
or registration, where applicable. Countries should make clear who their VASP
supervisors are to their foreign counterparts for the widest range of international
co-operation.
143. Given the cross-border nature of VASPs’ activities and provision of services and the
potential challenges in associating a particular VASP with a single jurisdiction,
international co-operation between relevant supervisors is also of specific
importance, as underlined in paragraph 8 of INR. 15 (see also paragraphs 257-260).
Jurisdictions could also refer to the relevant work of other international standard-
setting bodies for useful guidance in this respect, such as the International
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Preventive Measures
145. Paragraph 7 of INR. 15 makes clear that all of the preventive measures contained in
Recommendations 10 through 21 apply to both countries and obliged entities in the
context of VAs and VA financial activities. However, Recommendations 9, 22, and 23
also have indirect applicability in this space and are discussed below as well.
Accordingly, the following sub-section provides a Recommendation-by-
Recommendation explanation to help countries in further considering how to
implement the preventive measures in the context of VAs. Relatedly, Section IV
provides guidance specific to VASPs and other obliged entities that engage in VA
activities on how they should implement the preventive measures described below
as well as other AML/CFT measures throughout the FATF Recommendations.
146. In general, the preventive measures set out in Recommendations 10 to 21 apply to
VASPs in the same manner as FIs, with two specific qualifications. Firstly, the
occasional transaction designated threshold above which VASPs are required to
conduct CDD is USD/EUR 1 000 (rather than USD/EUR 15 000). Secondly, the wire
transfer rules set out in Recommendation 16 apply to VASPs and VA transfers in a
modified form (the ‘travel rule’). This is explained in more detail below.
35
See, for example, Principles 3 (on co-operation and collaboration) and 13 (on home-host
relationships) of the Committee’s Core Principles for Effective Banking Supervision:
www.bis.org/publ/bcbs230.pdf.
36
Jurisdictions may call or term VASPs as “FIs” or as “DNFBPs.” However, regardless of
what countries may choose to call VASPs, they are still subject to the same level of
regulation and supervision as FIs, in line with the types of financial activities in which
VASPs engage and the types of financial services they provide.
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the applicable legal or regulatory framework. The CDD process also includes
understanding the purpose and intended nature of the business relationship, where
relevant, and obtaining further information in higher risk situations.
149. In practice, VASPs can open and maintain accounts (i.e., establish a customer
relationship) and should collect the relevant CDD information when they provide
services to or engage in covered VA activities for or on behalf of their customers. In
cases where a VASP carries out an occasional transaction, however, the designated
threshold above which VASPs are required to conduct CDD is USD/EUR 1 000, in
accordance with INR. 15, paragraph 7(a).37
150. Regardless of the nature of the relationship or transaction, countries should ensure
that VASPs have in place effective procedures to identify and verify, on a risk basis,
the identity of a customer, including when establishing business relations with that
customer; where VASPs may have suspicions of ML/TF, regardless of any exemption
of thresholds; and where they have doubts about the veracity or adequacy of
previously obtained identification data.
151. Some jurisdictions may consider the use of VA kiosks (which some may refer to as
VA “ATMs,” as described in paragraph 71, on VA services and business models) as
an occasional transaction, whereby the provider or owner/operator of the kiosk
and the customer using the kiosk transact on a one-off basis. Other jurisdictions may
not consider such transactions to be occasional, with resulting consequences for
CDD obligations.
152. As discussed previously, VAs have certain potential ML/TF risks, including their
global reach, capacity for rapid settlement, ability to enable P2P transactions, and
potential for increased anonymity and obfuscation of transaction flows and
counterparties. In light of these characteristics, countries may therefore go further
than what Recommendation 10 requires by requiring CDD for VA transfers or
transactions performed by VASPs (as well as other obliged entities, such as banks
that engage in VA activities), including “occasional transactions”, at a threshold
below the USD/EUR 1 000 threshold, in line with their national legal frameworks.
Such an approach is consistent with the RBA set out in Recommendation 1, provided
that it is justified on the basis of the country’s assessment of risks (e.g., through the
identification of higher risks). Additionally, jurisdictions, in establishing their
regulatory and supervisory regimes, should consider how the VASP can determine
and ensure that the transactions are in fact only conducted on a one-off or
occasional basis rather than a more consistent (i.e., non-occasional) basis. In
determining what approach to take for occasional transactions, countries should
take into account the product and services provided by VASPs in their jurisdiction.
Countries may request VASPs to identify low risk, one-off VA transfers where the
VASPs are able to accept the residual risk to inform the country’s approach to
occasional transactions in the VA space.
153. As described in the Interpretive Note to Recommendation 10 (INR. 10), there are
circumstances where the ML/TF risk is higher and where enhanced CDD measures
must be taken. In the context of VA-related activities and VASPs, for example,
countries should consider country- or geographic-specific risk factors. VASPs
37
The FATF agreed to lower the threshold amount for VA-related transactions to USD/EUR
1 000, given the ML/TF risks associated with, and cross-border nature of, VA activities.
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38
“Credible sources” refers to information that is produced by reputable and universally
recognised international organisations and other bodies that make such information
publicly and widely available. In addition to the FATF and FATF-style regional bodies,
such sources may include, but are not limited to, supra-national or international bodies
such as the International Monetary Fund, the World Bank, and the Egmont Group of
Financial Intelligence Units.
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39
To date, FATF is not aware of any technically proven means of identifying the person that
manages or owns an unhosted wallet, precisely and accurately in all circumstances.
Countries should be aware of this and also note that the results of the analysis using such
tools should be considered as reference information only.
40
See 2015 VC Guidance, paragraph 44 as well as June 2013 Guidance for a Risk-Based
Approach to New Payment Products and Services, paragraph 66.
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or services, and conducting ongoing due diligence (see Section IV for further
discussion on ongoing due diligence and monitoring obligations for VASPs and
other obliged entities). Such transactional and record reviews are vital for effective
supervision and are an important data source for the transfer of the required
relevant customer information for compliance with the ‘travel rule’ (see
Recommendation 16).
Record-keeping
161. Recommendation 11 requires countries to ensure that VASPs maintain all records
of transactions and CDD measures for at least five years in such a way that individual
transactions can be reconstructed and the relevant elements provided swiftly to
competent authorities. Countries should require VASPs and other obliged entities
engaging in VA activities to maintain transaction records on transactions and
information obtained through CDD measures, including: information relating to the
identification of the relevant parties, the public keys (or equivalent identifiers),
addresses or accounts involved (or equivalent identifiers), the nature and date of
the transaction, and the amount transferred, for example. The public information
on the blockchain or other relevant distributed ledger of a particular VA may
provide a beginning foundation for recordkeeping, provided institutions can
adequately identify their customers. However, reliance solely on the blockchain or
other type of distributed ledger underlying the VA for recordkeeping is not
sufficient for compliance with Recommendation 11.
162. For example, the information available on the blockchain or other type of
distributed ledger may enable relevant authorities to trace transactions back to a
wallet address, though it may not readily link the wallet address to the name of an
individual. The wallet address contains a user code that serves as a digital signature
in the distributed ledger (i.e., a public key) in the form of a unique string of numbers
and letters. However, additional information will be necessary to associate the
address to a real or natural person.
41
“Foreign PEPs” are individuals who are or have been entrusted with prominent public
functions by a foreign country, for example Heads of State or of government, senior
politicians, senior government, judicial or military officials, senior executives of state
owned corporations, and important political party officials (FATF Glossary).
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42
One-off transactions or the mere messaging relationship in the context of non-customer
relationships, are not correspondent relationships (paragraph 13 of the FATF Guidance
on Correspondent Banking).
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MVTS
170. Recommendation 14 directs countries to register or license natural or legal
persons that provide MVTS in the country and ensure their compliance with the
relevant AML/CFT measures. As described in the 2015 VC Guidance, this includes
subjecting MVTS operating in the country to monitoring for compliance with
registration or licensing and other applicable AML/CFT measures. The registration
and licensing requirements of Recommendation 15, however, apply to all VASPs,
even those engaging in MVTS activities (e.g., domestic entities that provide as a
business convertible VA exchange services between virtual and fiat currencies in a
jurisdiction).
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171. Recommendation 14 also applies to agents of MVTS providers. That is, any natural
or legal person conducting MVTS activities on behalf of a VASP, whether by contract
with or under the direction of the entity. In such arrangements, the agent does not
provide VASP services to the principal, but instead provides them to third parties
on behalf of the principal. Entities in the VA sector may frequently act on behalf of
other entities, depending on the business model. In such a case, a VASP that use
agents should be required to include them in their AML/CFT programme and
monitor them for compliance with their programme. Agents should also be licensed
or registered by a competent authority, or the principal VASP should be required to
maintain a current list of its agents accessible by competent authorities in the
countries in which the principal VASP and its agents operate.
New technologies
172. Recommendation 15. In October 2018, the FATF adopted updates to
Recommendation 15, which reinforce the fundamental RBA and related obligations
for countries and obliged entities in the context of new technologies, in order to
clarify its application in the context of VAs, covered VA financial activities, and
VASPs. Recommendation 15 requires countries to identify and assess the ML/TF
risks relating to the development of new products and business practices, including
new delivery mechanisms, and the use of new or developing technologies for both
new and pre-existing products. Notably, it also requires countries to ensure that FIs
licensed by or operating in their jurisdiction take appropriate measures to manage
and mitigate the associated ML/TF risks before launching new products or business
practices or using new or developing technologies (see Annex A).
173. In line with the spirit of Recommendation 15, the October 2018 update further
clarifies that countries should manage and mitigate the risks emerging from VAs
and ensure that VASPs are regulated for AML/CFT purposes, licensed or registered,
and subject to effective systems for monitoring and ensuring compliance with the
relevant measures called for in the FATF Recommendations. INR. 15, which the
FATF adopted in June 2019, further clarifies Recommendation 15 and defines more
specifically how the FATF requirements apply in relation to VAs, covered VA
activities, and VASPs, including in the context of: assessing the associated ML/TF
risks; licensing or registration; supervision or monitoring; preventive measures
such as CDD, recordkeeping, and suspicious transaction reporting, among others;
sanctions and other enforcement measures; and international co-operation (see
Annex A).
174. In the context of VA and VASP activities, countries should ensure that VASPs
licensed by or operating in their jurisdiction can manage and mitigate the risks of
engaging in activities that involve the use of anonymity-enhancing technologies or
mechanisms, including but not limited to AECs, mixers, tumblers, privacy wallets
and other technologies that obfuscate the identity of the sender, recipient, holder,
or beneficial owner of a VA. If the VASP cannot manage and mitigate the risks posed
by engaging in such activities, then the VASP should not be permitted to engage in
such activities.
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such misuse when it occurs. At the time of drafting, the FATF termed such transfers
‘wire transfers’. In accordance with the functional approach of the FATF
Recommendations, the requirements relating to wire transfers and related
messages under Recommendation 16 apply to all providers of such services. This
includes VASPs that provide services or engage in activities, such as VA transfers,
that are functionally analogous to wire transfers.
43
“Transaction fees” means the amounts of VA that may be collected by the miner who
includes the transaction in a block. It could be called by various names depending on the
type of VA, such as gas or block rewards, but they are not within scope of the travel rule
for the same reason.
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not apply to the recipient VASP in respect of the refund, as the refund forms part of
the transfer by the ordering VASP.
Requirements to obtain, hold and submit required and accurate originator and
required beneficiary information
181. Countries should ensure that ordering institutions (whether a VASP or other
obliged entity such as a FI) involved in a VA transfer, obtain and hold required and
accurate originator information and required beneficiary information and submit
the information to beneficiary institutions (whether a VASP or other obliged entity,
such as a FI), if any. Further, countries should ensure that beneficiary institutions
(whether a VASP or other obliged entity, such as a FI) obtain and hold required (but
not necessarily accurate44) originator information and required and accurate
beneficiary information, as set forth in INR. 16 (see Box 4 below).
182. For the required information, which the ordering institution must obtain and hold,
this includes the:
44
As per Figure 1, data accuracy is not required for the beneficiary VASP which receives
originator information from an ordering VASP. They may assume that the data has been
verified by the ordering VASP.
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a. originator’s name (i.e., the sending person’s accurate (i.e. verified) full name);
b. originator’s account number where such an account is used to process the
transaction. In the VA context, this could mean the “wallet address” of the VA;
c. originator’s physical (geographical) address, or national identity number, or
customer identification number (i.e., not a transaction number) that uniquely
identifies the originator to the ordering institution, or date and place of birth.
For transmitting the geographical address of the originator, that means the
address which has been verified for accuracy by the originator VASP as part of
its KYC process (see paragraphs 148-160 on CDD);
d. beneficiary’s name (i.e., the name of the person who is identified by the
originator as the receiver of the VA transfer). This is not required to be verified
by the ordering institution for accuracy, but should be reviewed for the
purpose of STR monitoring and sanction screening; and
e. beneficiary account number where such an account is used to process the
transaction. In the VA context, this could mean the “wallet address” of the VA.
183. For the required information which the beneficiary institution must obtain from the
originator institution and hold, this includes the:
a. originator’s name (i.e., the sending person’s name). The beneficiary institution
does not need to be verify the originator’s name for accuracy, but should
review it for the purpose of STR monitoring and sanction screening;
b. originator’s account number where such an account is used to process the
transaction. In the VA context, this could mean the “wallet address” of the VA;
c. originator’s physical (geographical) address, or national identity number, or
customer identification number (i.e., not a transaction number) that uniquely
identifies the originator to the ordering institution, or date and place of birth;
d. beneficiary’s name (i.e., the name of the person who is identified by the
originator as the receiver of the VA transfer). The beneficiary institution must
verify the beneficiary’s name for accuracy, if the name of their customer has
not previously verified. Thus the beneficiary institution can confirm if the
beneficiary’s name and account number they obtain from the ordering
institution match with the beneficiary institution’s verified customer data; and
e. beneficiary’s account number where such an account is used to process the
transaction. In the VA context, this could mean the “wallet address” of the VA.
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Table 1. Data requirements for ordering and beneficiary VASPs in the travel rule
Accurate, i.e. the ordering VASP needs to verify the Data accuracy is not required. The beneficiary VASP
accuracy as part of its CDD process. may assume that the data has been verified by the
ordering VASP.
Beneficiary Required, i.e. submitting the necessary data to the Required, i.e. the beneficiary VASP needs to obtain
Information beneficiary VASP is mandatory. the necessary data from the ordering VASP.
Data accuracy is not required, but the ordering Accurate, i.e. the beneficiary VASP must have
VASP must monitor to confirm no suspicions arise. verified the necessary data and needs to confirm if
the received data is consistent.
Actions required Obtain the necessary information from the Obtain the necessary information from the ordering
originator and retain a record. VASP and retain a record.
Screen to confirm that the beneficiary is not a Screen to confirm that the originator is not a
sanctioned name. sanctioned name.
Monitor transactions and report when they raise a Monitor transaction and report when it raises a
suspicion. suspicion.
184. VASPs must submit the required information to the beneficiary institution, where
this exists. It is vital that countries ensure that providers of VA transfers—whether
VASPs or other obliged entities—transmit the required originator and beneficiary
information immediately and securely. This is particularly relevant given the rapid
and cross-border nature of VA transfers and in line with the objectives of
Recommendation 16 (as well as the traditional requirement in Recommendation 16
for originator and beneficiary information to “accompany […] wire transfers”
involving fiat currency). Where there is not a beneficiary institution, the VASP must
still collect the required information (as set out below).
185. “Immediately,”— in the context of INR. 15, paragraph 7(b) and given the cross-
border nature, global reach, and transaction speed of VAs—means that providers
should submit the required information prior, simultaneously or concurrently with
the transfer itself. See Recommendation 16 in Section IV for additional information
on these issues specific to VASPs and other obliged entities.
186. “Securely”, also in the context of INR. 15, paragraph 7(b), is meant to convey that
providers should transmit and store the required information in a secure manner.
This is to protect the integrity and availability of the required information to
facilitate record-keeping (among other requirements), facilitate the use of such
information by receiving VASPs or other obliged entities and protect the
information from unauthorized disclosure. Use of the term is not meant to impede
the objectives of Recommendation 16 or Recommendation 9 although exceptions or
altered procedures could be appropriate in cases where a VASP reasonably
assesses45 that the counterparty VASP cannot sufficiently protect travel rule
information.
45
VASPs should make a risk-based decision on whom to transact with (paragraph 199).
VASPs sending or receiving a VA transfer to/from an entity that is not a VASP or other
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obliged entity, should obtain the required originator and beneficiary information from
their user (even when they do not submit the data to beneficiary) (paragraph 204).
46
CPMI - Correspondent banking – July 2016. and BCBS - Guidelines Sound management of
risks related to money laundering and financing of terrorism(July 2020), “As
recommended by the CPMI, the use of the LEI as additional information in payment
messages should be possible on an optional basis in the current relevant payment
messages (i.e., MT 202 COV and MT 103). Where available, the use of the LEI would
facilitate the determination by the correspondent bank that the information in the
message is sufficient to unambiguously identify the originator and beneficiary of a
transfer”.
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191. Countries may choose to adopt a de minimis threshold for VA transfers of USD/EUR
1 000 in line with the FATF Standards, having regard to the risks associated with
various VAs and covered VA activities. If countries choose to implement such a
threshold, there are comparatively fewer requirements for VA transfers below the
threshold compared to VA transfers above the threshold. For VA transfers under the
threshold, countries should require that VASPs collect:
a. the name of the originator and the beneficiary; and
b. the VA wallet address for each or a unique transaction reference number.
192. Such information does not need to be verified unless there are suspicious
circumstances related to ML/TF, in which case information pertaining to the
customer should be verified.47
47
Recommendation 16, INR.16 paragraph 5.
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VA transfers to/from other VASPs and counterparty VASP identification and due
diligence
196. FATF expects countries to implement paragraph 7(b) of INR. 15, taking into account
the unique nature of VA transfers and the future control framework for travel rule
solutions in the private sector (see Recommendation 16 in Section IV). A VA transfer
can be directly settled, i.e. through distributed consensus on the blockchain
between wallet addresses alone, without the need for an intermediary. For a VASP
to transmit required information to another VASP however, it is necessary for them
to identify their counterparty VASP. A VASP would also need to conduct due
diligence on their counterparty VASP before they transmit the required information
to avoid dealing with illicit actors or sanctioned actors unknowingly. VASPs do not
need to undertake the counterparty VASP due diligence process for every individual
VA transfer when dealing with VASPs for which they have previously conducted
counterparty due diligence, unless there is a suspicious transaction history or other
information (such as adverse media, published information about regulatory or
criminal penalties) indicating they should. Considering the concept of due diligence,
countries should expect a VASP to refresh their counterparty due diligence
information periodically or when risk emerges from the relationship in line with
their defined RBA control structure. Accordingly, countries should expect their
obliged VASPs to implement this control mechanism. As already noted, VASPs
should use this due diligence process to determine whether a counterpart can
reasonably be expected to protect the confidentiality of information shared with it.
197. The best way to conduct counterparty due diligence in a timely and secure manner
is a challenge.48 There are broadly three phases in this process. These are not
intended as prescriptive actions that VASPs must take, but guidance on how
counterparty due diligence could be undertaken:
a. Phase 1: Determine whether the VA transfer is with a counterparty VASP. A
person may wish to transfer VAs to another VASP (e.g., a beneficiary with a
hosted wallet) or they may wish to transfer VAs to an unhosted wallet. The
originator VASP must therefore determine whether they will be transacting
with another VASP. This determination process is not purely an AML/CFT
requirement, but rather arises from the technology underpinning VAs. To date,
the FATF is not aware of any technically proven means of identifying the VASP
that manages the beneficiary wallet exhaustively, precisely, and accurately in
all circumstances and from the VA address alone;
b. Phase 2: Identify the counterparty VASP, as a VASP only knows the “name” of
the counterparty VASP following the previous phase. A VASP may identify a
counterparty VASP themselves using a reliable database in line with any
guidelines from a country on when to rely on such data; and
c. Phase 3: Assess whether the counterparty VASP is an eligible counterparty to
send customer data to and to have a business relationship with (see
Recommendation 16 in Section IV for further information on counterparty
48
See paragraph 61 of the FATF’s 12-month review report.
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198. To clarify the scope of this Guidance, competent authorities should require VASPs
to implement preventive measures in ‘Phase 3’ to assess the counterparty VASP,
where VASPs first have a business relationship, and then review the results of the
due diligence periodically. Countries should also maintain reliable, independent
sources of information for ‘Phase 2’ to assist VASPs in their efforts to identify the
counterparty VASP. This could include regulated institutions lists, such as VASP lists
where available, registries of beneficial ownership where available and other
examples mentioned in the BCBS Guideline.49 For the benefit of effective and
efficient counterparty due diligence, a regulated institutions list may include but
should not be limited to contains the VASP name and registered VASP address.
Considering the increased usage of digitalized processes in the financial industry,
countries should be encouraged to use a format that is machine-readable. A country
need not impose a separate licensing or registration system for VASPs with respect
to natural or legal persons already licensed or registered as FIs (as defined by the
FATF Recommendations) within that country. Countries that have such frameworks
may clarify to their private sector that such FIs might not be on the designated
49
BCBS (2014, rev. 2020) Sound management of risks related to money laundering and
financing of terrorism: revisions to supervisory co-operation, Annex 2” 21. Banks should
also consider gathering information from public sources. These may include the website
of the supervisory authority of the respondent bank, for cross-checking identification
data with the information obtained by the supervisor in the licensing process, or with
regard to potential AML/CFT administrative sanctions that have been imposed on the
respondent bank. This may also include public registries (see FATF Guidance, paragraph
25). www.bis.org/bcbs/publ/d505.pdf
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VASPs lists, or even not under the supervision of the same regulator, to avoid
unnecessary de-risking.
199. In addition, countries should also clarify that VASPs should make a risk-based
decision on whom to transact with, acknowledging that the risk mitigating
measures taken by each individual VASP may vary. In general, those business
decisions are made by each individual VASP based on their risk-based analysis from
an AML/CFT perspective, as well as considering other compliance issues, including
data storage and security, and the profitability of the business relationship.
Originating entities may wish to require travel rule compliance from their
beneficiaries, by contract regardless of the lack of regulation in the beneficiary
jurisdiction. Subject to their own discretion and ML/TF risk assessment,
jurisdictions may also consider designating all VASPs from countries which do not
effectively implement licensing or registration requirements as high-risk.
200. The FATF expects countries to implement paragraph 7(b) of INR.15 as soon as
possible. Countries may wish to take a staged approach to enforcement of travel
rule requirements to ensure that their VASPs have sufficient time to implement the
necessary systems, but should continue to ensure that VASPs have alternative
measures in place to suitably mitigate the ML/TF risks arising from VA transfers in
the interim. Countries should also take into account the unique nature of VA
transfers and the developing control framework for solutions in the private sector
to securely submit the required information. Nonetheless, countries are
implementing their AML/CFT frameworks for VASPs at different paces. This means
that some jurisdictions will require their VASPs to comply with the travel rule prior
to other jurisdictions (i.e., the ‘sunrise issue’). This can be a challenge for VASPs
regarding what approach they should take in dealing with VASPs located in
jurisdictions where the travel rule is not yet in force. Regardless of the lack of
regulation in the beneficiary jurisdiction, originating entities can require travel rule
compliance from beneficiaries by contract or business practice. In general, those
business decisions are made by each individual VASP based on their risk-based
analysis. The level of compliance that a VASP implements with paragraph 7(b) of
INR. 15 should form part of those decisions. VASPs and FIs should take into account
the level of ML/TF risk of each individual customer/counterparty VASP and any
applicable risk mitigation measures implemented by a counterparty/customer
VASP.
201. Given the ‘sunrise issue’ in relation to the travel rule, countries should adopt a RBA
in the assessment of the business models presented by VASPs. Countries should
consider the full context of travel rule compliance, including whether there are
sufficient risk mitigation measures taken by the VASP to adequately manage the
attendant ML/TF risks. Regardless of the regulation in a certain country, a VASP
may implement robust control measures to comply with the travel rule
requirements. Examples include VASPs restricting VA transfers to within their
customer base (i.e., internal transfers of VAs within the same VASP), only allowing
confirmed first-party transfers outside of their customer base (i.e., the originator
and the beneficiary are confirmed to be the same person) and enhanced monitoring
of transactions. See Section IV “Counterparty VASP Identification and Due
Diligence” for more risk remediation examples. While the introduction and
implementation of relevant regulations by countries is important in itself, the
absence of relevant regulations in one country does not necessarily preclude the
effectiveness of measures introduced by a VASP on its own.
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50
To clarify, when a VASP, FI or other intermediary obliged entity facilitates a VA transfers
as an intermediate element in a chain of VA transfers, and the certain activity/business
has been classified as a VASP in this Guidance, then they would be classified as an
“intermediary VASP”.
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51
For example, STRs filed both by depository institutions and VASPs (specifically,
exchangers) enabled U.S. law enforcement to take action in 2017 against BTC-e—an
Internet-based money transmitter that exchanged fiat currency as well as VAs and
facilitated transactions involving ransomware, computer hacking, identity theft, tax fraud
schemes, public corruption, and drug trafficking—by helping them to identify VA wallet
addresses used by BTC-e and detect different illicit streams of activity moving through
the exchange.
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International Co-operation
221. Recommendations 36 through 40. Given the cross-border and mobile nature of
VA activities and the VASP sector, international co-operation and the
implementation of Recommendations 36 through 40 by countries and competent
authorities is critical, particularly the measures applicable to countries and
competent authorities in Recommendations 37 through 40. Moreover, effective
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DNFBPs in the following situations: (a) casinos, (b) real estate agents, (c) dealers in
precious metals and stones, (d) lawyers, notaries, other independent legal
professionals and accountants, and (e) trust and company service providers.
Recommendation 22 specifically notes that the requirements set out in
Recommendations 10, 11, 12, 15, and 17 apply to DNFBPs. Thus, in considering how
to regulate and supervise and apply the preventive measures to DNFBPs that engage
in VASP activities, countries should refer to the application of Recommendations 10,
11, 12, 15, and 17, among other Recommendations relevant to VASPs, and apply the
appropriate CDD, recordkeeping, and other measures accordingly. Countries should
also ensure that DNFBPs engaging in VASP activities are registered/licensed in
relation to those VASP activities (see paragraphs 123-139).
228. Similarly, Recommendation 28 requires countries and competent authorities to
subject DNFBPs to regulatory and supervisory measures, as set out in the FATF
Recommendations. As stated previously, countries should subject VASPs, including
DNFBPs that engage in VASP activities, to a level of supervision and regulation on
par with FIs and not to DNFBP-level supervision. Where a DNFBP engages in
covered VASP activities (e.g., a casino that provides VA products and services or
engages in covered VA activities), countries should subject the DNFBP to a higher
level of supervision (e.g., “DNFBP plus” supervision), consistent with the higher
level of supervision for all VASPs, which is equivalent to the level of supervision and
regulation for FIs as laid out in Recommendations 26 and 27. In such instances, the
entity is, in essence, a VASP engaging in specified financial activities and not a
DNFBP, regardless of what a country may term, call, or label such an entity,
institution, or product or service provider. This approach by countries will help to
ensure a level regulatory playing field across the VASP sector globally and a level of
supervision for VASPs that is consistent with and appropriate for the types of
activities in which they engage. See Section I above for further information as to who
a VASP is.
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RBA should also reflect the nature, diversity, and maturity of the VASP sector and
its risk profile as well as the ML/TF risk associated with individual VASPs and
specific VA products, services, or activities.
232. Supervisors should also develop a deep understanding of the VASP market, its
structure, and its role in the financial system and the country’s economy to better
inform their assessment of risk in the sector. This may require investing in training,
personnel, or other resources that enable supervisors to gain the practical skillsets
and expertise needed to regulate and supervise the range of VA providers and
activities described in the VA services or business models at the onset of this
Guidance.
233. Supervisors should draw on a variety of sources to identify and assess the ML/TF
risks associated with VA products, services, and activities as well as with VASPs.
Such sources should include, but are not limited to, the jurisdiction’s national or
sectoral risk assessments, domestic or international typologies and supervisory
expertise, and FIU guidance and feedback. Where competent authorities do not
adequately understand the VASP sector or broader VA ecosystem in the country, it
may be appropriate for competent authorities to undertake a more targeted
sectoral risk assessment in relation to the VASP sector and/or VA environment in
order to develop a national-level understanding of the relevant ML/TF risks and to
inform the institutional assessments that should be undertaken by VASPs.
234. A number of jurisdictions are using, or exploring using, blockchain analytics
services to assist with their supervision. The services can be used in a number of
ways, including to pinpoint areas that supervisors may wish to focus on during
assessments of individual VASPs and helping to categorise the highest risk VASPs
based on their activity. There is a cost consideration with these tools and not all VAs
are covered by all vendors. Blockchain analytics are also widely used by VASPs and
some FIs to monitor their own exposure to risk (e.g., VA transfers that have passed
through mixer services or come from privacy wallets). It is important to consider
any potential implications for privacy and data protection in the use of such tools, if
they allow transparency that is not otherwise available (e.g., on public blockchains).
235. Access to information about ML/TF risks is fundamental for an effective RBA.
Recommendation 1 (see INR. 1.3) requires countries, including supervisors, to take
appropriate steps to identify and assess ML/TF risks for the country on an ongoing
basis in order to make information available for AML/CFT risk assessments
conducted by FIs and DNFBPs, including VASPs. Countries, including supervisors,
should keep the risk assessments up-to-date and should have mechanisms to
provide appropriate information on the results to all relevant competent
authorities, FIs, and DNFBPs, including VASPs. In situations where some parts of the
VASP sector have potentially limited capacity to identify the ML/TF risks associated
with VA products, services, or activities, countries, including supervisors, should
work with the sector to understand its risks and to help the private sector in
developing its own understanding of the risks. Depending on the capacity of the
VASP sector, general information or more granular information and support may be
required.
236. In considering individual VASPs or particular VA products, services, or activities,
supervisors should take into account the level of risk associated with the VASPs’
products and services, business models, corporate governance arrangements,
financial and accounting information, delivery channels, customer profiles,
geographic location, countries of operation, VASPs’ level of compliance with
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52
Under the FATF Recommendations, “core principles” refers to the Core Principles for
Effective Banking Supervision issued by the Basel Committee on Banking Supervision,
the Objectives and Principles for Securities Regulated issued by the International
Organization of Securities Commissions, and the Insurance Supervisory Principles issued
by the International Association of Insurance Supervisors.
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General Approach
244. Supervisors should understand the ML/TF risks faced by VASPs or associated with
the VASP sector. Supervisors should have a comprehensive understanding of higher
and lower risk lines of business or particular VA products, services or activities, with
a particularly thorough understanding of the higher-risk products, services or
activities.
245. Supervisors should ensure that their staff is trained and equipped to assess whether
a VASP’s policies, procedures, and controls are appropriate and proportional in
view of the VASP’s risk assessment and risk management procedures. To support
supervisors’ understanding of the overall strength of measures in the VASP sector,
countries could consider conducting a comparative analysis of VASPs’ AML/CFT
programs in order to further inform their judgment of the quality of an individual
VASP’s controls.
246. In the context of the RBA, supervisors should determine whether a VASP’s AML/CFT
compliance and risk management program is adequate to (i) meet the regulatory
requirements, and (ii) appropriately and effectively mitigate and manage the
relevant risks. In doing so, supervisors should take into account the VASP’s own risk
assessment. In the case of VASPs that operate across different jurisdictions on the
basis of multiple licenses or registrations, given the cross-border nature of covered
VA activities, the supervisor that licenses or registers the natural or legal person
VASP should take into consideration the risks to which the VASP is exposed and the
extent to which those risks are adequately mitigated.
247. As part of their examination procedures, supervisors should communicate their
findings and views about an individual VASP’s AML/CFT controls and communicate
clearly their expectations of the measures needed for VASPs to comply with the
applicable legal and regulatory frameworks. In jurisdictions where VA financial
activities may implicate multiple competent authorities, supervisory counterparts
within the jurisdiction should also co-ordinate with one another, where applicable,
to effectively and clearly communicate their expectations to VASPs as well as to
other obliged entities that may engage in VA activities or provide VA products or
services. This is particularly important in the context of VASPs that engage in
various types of regulated VA activity (e.g., VA money or value transfer services or
securities, commodities or derivatives activity) or in VA financial activities that may
implicate various banking, securities, commodities, or other regulators.
248. Where AML/CFT weaknesses are identified in VASPs, supervisors should follow-up
and assess the robustness of remediation actions taken to rectify the deficiencies,
and to prevent recurrence. For regulatory breaches, supervisors should have a
broad range of regulatory/supervisory measures available that can be applied to
address the risks exposed by the lack of compliance. This range could include
warnings, action letters, orders, agreements, administrative sanctions, penalties
and fines and other restrictions and conditions on a VASP’s activities. A full range of
measures should be applied taking into account the level of severity of the identified
breaches in the context of unmitigated risks. Priority should be given to those
deficiencies that expose the system to the greatest ML/TF risks. For further
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Guidance
250. Supervisors should communicate their expectations of VASPs’ compliance with
their legal and regulatory obligations and may consider engaging in a consultative
process, where appropriate, with relevant stakeholders. Such guidance may be in
the form of high-level requirements based on desired outcomes, risk-based
obligations, and information about how supervisors interpret relevant legislation
or regulation or more detailed guidance about how VASPs might best apply
particular AML/CFT controls.
251. Supervisors and other competent authorities may consider the guidance and input
of VA technical experts in order to develop a deeper understanding of the relevant
business models and operations of VASPs, their potential exposure to ML/TF risks,
as well as the ML/TF risks associated with particular VA types or specific covered
VA activities and to make an informed judgment about the mitigation measures in
place or needed.
252. As discussed previously, providing guidance for and feedback to the VASP sector is
essential and is a requirement under Recommendation 34. The guidance could
include best practices that enable VASPs to undertake assessments and develop risk
mitigation and compliance management systems to meet their legal and regulatory
obligations. Supporting ongoing and effective communication between supervisors
and VASPs is an essential component of the successful implementation of a RBA.
253. Supervisors of VASPs should also consider liaising with other relevant domestic
regulatory and supervisory authorities to secure a coherent interpretation of
VASPs’ legal obligations and to promote a level playing field, including between
VASPs and between VASPs and other obliged entities such as FIs and DNFBPs. Such
co-ordination is particularly important where more than one supervisor is
responsible for supervision (e.g., where the prudential supervisor and the AML/CFT
supervisors are in different agencies or in separate divisions of the same agency). It
also is particularly relevant in the context of VASPs that provide various products
or services or engage in different financial activities that may fall under the purview
of different regulatory or supervisory authorities within a particular jurisdiction.
Multiple sources of guidance should not create opportunities for regulatory
arbitrage, loopholes, or unnecessary confusion among VASPs. When possible,
relevant regulatory and supervisory authorities in a jurisdiction should consider
preparing joint guidance.
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Training
254. Training, at all levels, from front-line supervisors to managers and board members,
is important for supervision staff to understand the VASP sector and the various
business models that exist. In particular, supervisors should ensure that staff are
trained to assess the quality of a VASP’s ML/TF risk assessment and to consider the
adequacy, proportionality, effectiveness, and efficiency of the VASP’s AML/CFT
policies, procedures, and internal controls in light of its risk assessment. Training
on current and emerging technologies such as blockchain or other analytics may
also be useful.
255. Training should cover issues such as how to interact with entities and allow
supervisory staff to form sound judgements about the quality of the VASP’s risk
assessments and the adequacy and proportionality of a VASP’s AML/CFT controls.
It should also aim at achieving consistency in the supervisory approach at a national
level in cases where there are multiple competent supervisory authorities or when
the national supervisory model is devolved or fragmented.
256. Similarly, countries should consider opportunities for public-private sector training
and collaboration to further educate and raise awareness among both operational
and other competent authorities and industry on various issues relating to VAs and
VASP activities.
Information Exchange
257. Information exchange between the public and private sector is important and
should form an integral part of a country’s strategy for combating ML/TF in the
context of VA and VASP activities. Public authorities should share risk information,
where possible, to better help inform the risk assessments of VASPs. The type of
information relating to risks in the VA space that the public and private sectors
could share include:
a. ML/TF risk assessments;
b. Typologies and methodologies of how money launderers or terrorist
financiers misuse VASPs, a particular VA mechanism over another (e.g., VA
transfer or exchange activities versus VA issuance activities in the context of
money laundering or terrorist financing) or VAs more generally;
c. General feedback on the quality and usefulness of STRs and other relevant
reports;
d. Information on suspicious indicators associated with VA activities or VASP
transactions;
e. Targeted unclassified intelligence, where appropriate and subject to the
relevant safeguards such as confidentiality agreements; and
f. Countries, persons, or organisations whose assets or transactions should be
frozen pursuant to targeted financial sanctions as required by
Recommendation 6.
258. Further, countries should consider how they might share information with the
private sector in order to help the private sector, including VASPs, better
understand the nature of law enforcement information requests or other
government requests for information or to help shape the nature of the requests so
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that VASPs can provide more accurate and specific information, where applicable,
to competent authorities.
259. Domestic co-operation and information exchange between the supervisors of the
banking, securities, commodities, and derivatives sectors and the VASP sector;
among law enforcement, intelligence, FIU and VASP supervisors; and between the
FIU and the supervisor(s) of the VASP sector are also of vital importance for
effective monitoring and supervision of VASPs.
260. Similarly, in line with Recommendation 40, cross-border information sharing by
authorities and the private sector with their international counterparts is critical in
the VASP sector, taking into account the cross-border nature and multi-
jurisdictional reach of VASPs. Authorities should also consider the Principles of
Information-Sharing and Co-operation amongst VASP Supervisors for further
guidance on how to co-operate with their counterparts (see Section VI).
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PART FOUR:
APPLICATION OF FATF STANDARDS TO VASPs AND OTHER OBLIGED
ENTITIES THAT ENAGE IN OR PROVIDE COVERED VA ACTIVITIES
261. The FATF Recommendations apply both to countries as well as to VASPs and other
obliged entities that provide covered VA-related services or financial activities or
operations (“other obliged entities”), including banks, securities broker-dealers,
and other FIs. Accordingly, Section IV provides additional guidance specific to
VASPs and other obliged entities that may engage in covered VA activities.
262. In addition to identifying, assessing, and taking effective action to mitigate their
ML/TF risks, as described under Recommendation 1, VASPs and other obliged
entities in particular should apply all of the preventive measures in
Recommendations 9 through 21 as set forth above in Section III, including in the
context of CDD, when engaging in any covered VA activities. Similarly, DNFBPs
should be aware of their AML/CFT obligations when engaging in covered VA
activities as set forth in INR. 15 and as described in paragraphs 227-228
263. Readers of this Guidance should note that the below paragraphs relating to
individual preventive measures and FATF Recommendations are intended to
provide additional specific guidance for VASPs and other obliged entities on certain
issues. The lack of a dedicated paragraph for each FATF Recommendation within
the preventive measures, as provided in Section III, for example, does not mean that
the respective Recommendations or preventive measures contained therein do not
also apply to VASPs and other obliged entities that engage in or provide VA
activities.
264. In general, the preventive measures set out in Recommendation 9 to 21 apply to
VASPs in the same manner as FIs, with two specific qualifications. Firstly, the
occasional transaction designated threshold above which VASPs are required to
conduct CDD is USD/EUR 1 000 (rather than USD/EUR 15 000). Secondly, the wire
transfer rules set out in Recommendation 16 apply to VASPs and VA transfers in a
modified form (the ‘travel rule’). This is explained in more detail below.
265. Recommendation 10 sets forth the required CDD measures that FIs must
implement for all customers, including identifying the customer and verifying the
customer’s identity using reliable, independent source documents, data or
information; identifying the beneficial owner; understanding and obtaining
information on the purpose and intended nature of the business relationship; and
conducting ongoing due diligence on the relationship and scrutiny of transactions.
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diligence on the business relationship; and mitigate the ML/TF risks associated with
the customer and the customer’s financial activities. Such additional, non-core
identity information, which some VASPs currently collect, could include, for
example an IP address with an associated time stamp; geo-location data; device
identifiers; VA wallet addresses; and transaction hashes.
270. For covered VA activities, the verification of customer and beneficial ownership
information by VASPs should be completed before or during the course of
establishing the relationship.53
271. Where a VASP cannot apply the appropriate level of CDD, Recommendation 10
requires the VASP to not enter into a business relationship or carry out an
occasional transaction or to terminate an already-existing business relationship;
and consider making a STR in relation to the customer.
272. Based on a holistic view of the information obtained in the context of their
application of CDD measures—which could include both traditional information
and non-traditional information as described above—VASPs and other obliged
entities should be able to prepare a customer risk profile in appropriate cases. A
customer’s profile will determine the level and type of ongoing monitoring
potentially necessary and support the VASP’s decision whether to enter into,
continue, or terminate the business relationship. Risk profiles can apply at the
customer level (e.g., nature and volume of trading activity, origin of virtual funds
deposited, etc.) or at the cluster level, where a cluster of customers displays
homogenous characteristics (e.g., clients conducting similar types of VA
transactions or involving the same VA). VASPs should periodically update customer
risk profiles of business relationships in order to apply the appropriate level of CDD.
273. If a VASP uncovers VA addresses that it has decided not to establish or continue
business relations with or transact with due to suspicions of ML/TF, the VASP
should consider making available its list of “blacklisted wallet addresses,” subject to
the laws of the VASP’s jurisdiction. A VASP should screen its customer’s and
counterparty’s wallet addresses against such available blacklisted wallet addresses
as part of its ongoing monitoring. A VASP should make its own risk-based
assessment and determine whether additional mitigating or preventive actions are
warranted if there is a positive hit.
274. VASPs and other obliged entities that engage in covered VA activities may adjust the
extent of CDD measures, to the extent permitted or required by their national
regulatory requirements, in line with the ML/TF risks associated with the individual
business relationships, products or services, and VA activities, as discussed above
under the application of Recommendation 1. VASPs and other obliged entities must
therefore increase the amount or type of information obtained or the extent to
which they verify such information where the risks associated with the business
relationship or VA activities is higher, as described in Section III. Similarly, VASPs
and other obliged entities may also simplify the extent of the CDD measures where
the risk associated with the business relationship of activities is lower. However,
VASPs and other obliged entities may not apply simplified CDD or an exemption
from the other preventive measures simply on the basis that natural or legal
persons carry out the VA activities or services on an occasional or very limited basis
(INR. 1.6(b)). Further, simplified CDD measures are not acceptable whenever there
53
See also 2015 VC Guidance, paragraph 45.
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279. Recommendation 12. For domestic PEPs54 and international organisation PEPs,55
obliged entities, such as VASPs, must take reasonable measures to determine
whether a customer or beneficial owner is a domestic or international organisation
PEP and then assess the risk of the business relationship. For higher-risk business
relationships with domestic PEPs and international organisation PEPs, VASPs and
other obliged entities should take additional measures consistent with those
applicable to foreign PEPs, including identifying the source of wealth and source of
funds when relevant.56
281. Recommendation 16. As noted in Section III, providers in this space must comply
with the requirements of Recommendation 16 (i.e. the ‘travel rule’). This includes
the obligation to obtain, hold, and submit required originator and beneficiary
information associated with VA transfers in order to identify and report suspicious
transactions, take freezing actions, and prohibit transactions with designated
persons and entities. The requirements apply to both VASPs and other obliged
entities such as FIs when they send or receive VA transfers on behalf of a customer.
54 “Domestic PEPs” are individuals who are or have been entrusted domestically with
prominent public functions, for example Heads of State or of government, senior
politicians, senior government, judicial or military officials, senior executives of state
owned corporations, important political party officials (FATF Glossary).
55 “Persons who are or have been entrusted with a prominent function by an international
organisation” refers to members of senior management, i.e., directors, deputy directors, and
members of the board or equivalent functions (FATF Glossary).
56 Further information on PEPs is set out in the 2013 FATF Guidance on Politically Exposed
Persons (Recommendations 12 and 22).
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runs on top of the DLT platform (e.g., using a smart contract, multiple-signature, or
any other technology); an independent (i.e., non-DLT) messaging platform or
application program interface (API); or any other effective means for complying
with the Recommendation 16 measures.
283. These technological solutions should enable VASPs to comply with the travel rule in
an effective and efficient manner and enable a VASP to carry out the following main
actions:
a. enable a VASP to locate counterparty VASPs for VA transfers;
b. enable the submission of required and accurate originator and required
beneficiary information immediately when a VA transfer is conducted on a
DLT platform;
c. enable VASPs to submit a reasonably large volume of transactions to multiple
destinations in an effectively stable manner;
d. enable a VASP to securely transmit data, i.e. protect the integrity and
availability of the required information to facilitate record-keeping;
e. protect the use of such information by receiving VASPs or other obliged
entities as well as to protect it from unauthorized disclosure in line with
national privacy and data protection laws;
f. provide a VASP with a communication channel to support further follow-up
with a counterparty VASP for the purpose of:
o due diligence on the counterparty VASP; and
o requesting information on a certain transaction to determine if the
transaction involves high risk or prohibited activities.
284. VASPs or other obliged entities should implement mechanisms to ensure effective
scrutiny of transactions to identify STRs, taking account of the information obtained
through the above communication infrastructure. This could be done by combining
other customer information, transaction history, and additional transaction data
that it or its counterparty VASP obtained from its customer. VASPs should also
ensure that they are screening transactions to meet their sanctions obligations.
Further information on this process is set out in the discussion of Recommendation
16 in Section III of this Guidance. When VASPs or other obliged entities consider
selecting a technological solution for compliance with the travel rule, they should
consider the above control needs.
285. VASPs and other obliged entities in VA transfers, whether as an ordering or
beneficiary institution, should consider how they might leverage existing
commercially available technology to comply with the requirements of
Recommendation 16, and specifically the requirements of INR. 15, paragraph 7(b).
Examples of existing technologies that providers could consider as a foundation for
enabling the identification of beneficiaries of VA transfers as well as the
transmission of required originator and beneficiary in near real-time before a VA
transfer is conducted on a DLT platform include:
a. Public and private keys, which are created in pairs for each entity involved in a
transmission and encrypt and decrypt information during the initial part of
the transmission so that only the sender and recipient of the transmission can
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decrypt and read the information, wherein the public key is available to
everyone while the private key is known only to the creator of the keys;
b. Transport Layer Security/Secure Sockets Layer (TLS/SSL) connections, which
make use of public and private keys among parties when establishing a
connection and secure almost all transmissions on the Internet, including
emails, web browsing, logins, and financial transactions, ensuring that all data
that passes between a web server and a browser remains private and secure;
c. X.509 certificates, which are digital certificates administered by certificate
authorities that use the X.509 PKI standard to verify that a public key belongs
to the user, computer, or service identity in the certificate and which are used
worldwide across public and private sectors;
d. X.509 attribute certificates, which can encode attributes (such as name, date of
birth, address, and unique identifier number), are attached cryptographically
to the X.509 certificate, and are administered by attribute certificate
authorities;
e. API technology, which provides routines, protocols, and tools for building
software applications and specifies how software components should interact;
as well as
f. Other commercially available technology or potential software or data sharing
solutions.
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57
Annex 4, General guide to account opening, www.bis.org/bcbs/publ/d505.htm.
58
For example, one of the tools that used in the banking sector to fulfil their correspondent
banking obligations is the Wolfsberg questionnaire. This provides a starting-point for a
potential framework in the VASP counterparty due diligence context.
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300. Recommendation 20. VASPs and other obliged entities that engage in or provide
VA activities, products, and services should have the ability to flag for further
analysis any unusual or suspicious movements of funds or transactions—including
those involving or relating to VAs—or activity that is otherwise indicative of
potential involvement in illicit activity regardless of whether the transactions or
activities are fiat-to-fiat, virtual-to-virtual, fiat-to-virtual, or virtual-to-fiat in nature.
VASPs and other obliged entities should have appropriate systems so that such
funds or transactions are scrutinised in a timely manner and a determination can
be made as to whether funds or transactions are suspicious.
301. VASPs and other obliged entities should promptly report funds or transactions,
including those involving or relating to VAs and/or providers that are suspicious to
the FIU and in the manner specified by competent authorities. The processes that
VASPs and other obliged entities put in place to escalate their suspicions and
ultimately report to the FIU should reflect this. While VASPs and other obliged
entities can apply the policies and processes that lead them to form a suspicion on
a risk-sensitive basis, they should report their ML/TF suspicions once formed and
regardless of the amount of the transaction or whether the transaction has
completed. The obligation for VASPs and other obliged entities to report suspicious
transactions is therefore not risk-based, nor does the act of reporting discharge
them from their other AML/CFT obligations. Further, VASPs and other obliged
entities should comply with applicable STR requirements even when operating
across different jurisdictions.
302. Consistent with INR. 15 and in relation to Recommendation 16, in the case of a VASP
(or other obliged entity) that controls both the ordering and the beneficiary side of
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a VA funds or wire transfer, the VASP or other obliged entity should take into
account all of the information from both the ordering and beneficiary sides in order
to determine whether the information gives rise to suspicion and, where necessary,
file an STR with the appropriate FIU and make relevant transaction information
available to the FIU. The lack of required originator or beneficiary information
should be considered as a factor in assessing whether a transfer involving VAs or
VASPs is suspicious and whether it is thus required to be reported to the FIU. The
same holds true for other obliged entities such as traditional FIs involved in a
transfer involving VAs or VASPs.
303. Where the VASP requests further information on a counterparty or information
from its customer in case the VASP receiving a VA transfer from an entity that is not
a VASP or other obliged entity, it expects their customer to respond in a timely
fashion and provide documents/information to the level of detail requested. Where
their customer does not answer, it may trigger concerns for a VASP on their
customer being unable to reasonably explain the soundness of its transaction and
lead the VASP to consider the filing of a STR on their customer. A request for
information could be followed by a reassessment of the customer’s attributes and
risk profile when necessary.
304. Further information on red-flag indicators for VAs that could suggest criminal
behaviour are set out in the FATF’s Virtual Asset Red Flag Indicators of Money
Laundering and Terrorist Financing. These indicators help VASPs and other obliged
entities to detect and report suspicious transactions involving VAs. Key indicators
include:
a. Technological features that increase anonymity - such as mixers, tumblers or
AECs;
b. Geographical risks - criminals can exploit countries with weak, or absent,
national measures for VAs;
c. Transaction patterns – including transactions which are structured to avoid
reporting or appear irregular, unusual or uncommon;
d. Transaction size – if the amount and frequency has no logical business
explanation;
e. Sender or recipient profiles; and
f. Source of funds or wealth.
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PART FIVE:
COUNTRY EXAMPLES OF RISK-BASED APPROACH TO VIRTUAL
ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
Italy
306. In Italy, Legislative Decree No. 231 of 2007, amended by Legislative Decrees No. 90
of 2017 and No. 125/2019, includes providers engaged in the five functional
activities as defined by the FATF, as recipients of AML/CFT obligations.
307. Service providers related to VAs are required to be listed in a special section of the
register held by “Organismo degli Agenti e dei Mediatori” (OAM). The registration is
a precondition for service providers related to VAs in order to carry out their
activity in Italy. Work is currently ongoing to implement the register.
308. VASPs are considered obliged entities and are subject to the full set of AML/CFT
measures.
309. On March 21, 2019, Italy adopted the update of the National Risk Assessment (NRA).
It includes an assessment of the ML/TF risks emanating from VAs. The results of the
updated NRA will be used in order to strengthen the national strategy. Obliged
entities and subjects (financial and non-financial) are requested to take into
consideration the results of the updated NRA in order to conduct/update their risk
assessment.
310. The STRs and the further analysis conducted by the Italian FIU (UIF) permit it to
collect information about: i) VASPs operating in Italy, including business data
(typology of service provided); location; data on the beneficial owner, administrator
and other connected subjects; ii) detailed information on single transactions (e.g.,
date, amount, executor, counterparts, and wallet accounts); data on the bank
accounts involved (e.g., holder, power of attorney, origin/use of the funds, and
general features of the financial flows); iii) data on the personal and economic
profile of the customer or the holder of the wallet; information useful to match VA
addresses to the identity of the owner of the VAs; unambiguous identification data
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(e.g., fiscal code and VAT number); iv) wallet or account information (e.g., overall
amount of VAs owned by one or more subjects; detailed information on main
movements of VAs traced back to the same subject or linked subjects in a specific
timeframe; wallet/account statement in an editable format; and v) type and main
features of VAs.
311. Since 2015, the Bank of Italy has warned consumers on the high risks of buying
and/or holding VAs as well as supervised financial intermediaries about the
possible risks associated with VAs. In particular, it issued a warning for consumers
and a communication for supervised financial intermediaries (January 2015) as
well as a new warning for consumers which recalled the one issued by the three
European financial authorities—European Securities and Markets Authority
(ESMA), the European Banking Authority (EBA), and the European Insurance and
Occupational Pensions Authority (EIOPA) in March 2018. The UIF, in order to
enhance the engagement with the private sector, issued a Communication on
January 30, 2015 about the anomalous use of crypto-assets, addressing particularly
the FIs (i.e., banks and payment institutions) as well as gambling operators, and
underlining the necessity for these obliged entities to focus their attention on
possible anomalous transactions, such as wire transfers, cash deposits and
withdrawals, use of prepaid cards, associated with crypto-assets purchases or
investments.
312. The UIF is progressing its analysis, focussing on new risks and emerging trends. An
updated Communication was issued in 2019 to assist obliged entities in performing
their tasks. In particular, the UIF updated its 2015 Communication on the
anomalous use of crypto-assets by providing more details on recurring elements,
operational methods, and behavioural risk profiles identified in STRs related to VAs.
The Communication sets out specific instructions for filling in data in the pre-set
STRs’ format, particularly with reference to information about: VASPs, transactions,
users/customers, and wallets/accounts.
313. In December 2016 and July 2018, the UIF published collections of sanitized ML/TF
cases that emerged in the course of financial analyses, including typologies
connected to the anomalous use of VAs.
Finland
314. The Act on Virtual Currency Providers (572/2019) came into force on May 1st 2019.
VASPs are required to register (authorization) with the Finnish Financial
Supervisory Authority (FIN-FSA).59 Those who already provided services before
legislation came into force, needed to be registered by November 1st 2019. New
actors had to be registered prior to starting their operations. The definition of
VASPs includes exchanges (both fiat to VAs and between VAs as well as VAs and
other goods such as gold), custodian wallet providers, and issuers of virtual
currency. The requirements for registration include basic fit and proper checks,
requirements for handling customer funds, and simple rules regarding marketing
(i.e., an obligation to give all relevant information and an obligation for truthful
information). VASPs are obliged entities as defined in the AML Act (444/2017) and
were required to comply with AML/CFT obligations from December 1st 2019.
59
. www.finanssivalvonta.fi/en/banks/fintech--financial-sector-
innovations/virtuaalivaluutan-tarjoajat/
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VASP's AML/CFT risk assessment and their procedures and guidelines relating to
AML/CFT are reviewed as part of the registration process.
315. FIN-FSA was given powers to issue regulations and guidelines on certain parts of
VASP activity. The FIN-FSA regulations and guidelines entered into force on July 1st
2019.60 The regulations contain regulation on holding and protecting client money
and segregation of client money and own funds. Guidelines concern compliance
with AML/CFT legislation.
316. Prior to the Act, the FIN-FSA had been working with organizers of ICOs from the
point of view of securities markets legislation and financial instruments. The aim
had been to identify when the VA was a financial instrument (i.e., transferable
security). These assessments are still required occasionally. In order to facilitate the
assessment on the nature of the asset to be issued, the FIN-FSA has drafted a
checklist that is used in all ICO-related enquiries. The checklist as well as frequently
asked questions related to VAs are available at the FIN-FSA website.61
317. The FIN-FSA supervisory experience has shown that VASPs are now willing and
keen on being regulated and trying to seek supervisors’ endorsement for their
activities. The challenge is to communicate to the general public that authorization
does not equal endorsement. VASPs have had challenges in opening bank accounts,
which could partly explain the change in their attitude towards regulation.
Japan
318. Japan amended the Payment Services Act and Act on Prevention of Transfer of
Criminal Proceeds (PTCP Act) in 2016 in response to the bankruptcy of a large VASP
in 2014 and the 2015 FATF VC Guidance. Following the enactment of the laws in
April 2017, the JFSA established a VASP monitoring team in August 2017, composed
of AML/CFT and technology specialists.
319. As a part of its registration procedure, the JFSA assesses applicants’ AML/CFT
programs, with a focus on consistency between the applicants’ risk assessment and
their business plan, through document-based assessment and off-site or on-site
interviews with them (as of July 2021, 31 VASPs are registered).
320. In order to ensure predictability and transparency of the registration process from
the applicants’ viewpoint, the form of the questionnaire that applicants are required
to fill in for the registration process was published in October 2018. Based on the
knowledge and experience accumulated through past monitoring and registration
examinations, the content of the questionnaire was revised by consolidating and
eliminating some items. It was then re-published in April 2020, aiming at enabling
JFSA to examine the AML/CFT regime more efficiently, especially for the items
where more intensive risk management is required.
60
. www.finanssivalvonta.fi/en/regulation/FIN-FSA-regulations/organisation-of-
supervised-entities-operations/04_2019/.
61
. www.finanssivalvonta.fi/en/banks/fintech--financial-sector-
innovations/virtuaalivaluutan-tarjoajat/frequently-asked-questions-on-virtual-
currencies-and-their-issuance-initial-coin-offering/
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324. The JFSA also closely co-operates with the Japan Virtual Currency Exchange
Association (JVCEA), the self-regulatory body certified in October 2018, for prompt
and flexible response to VASP-related issues. The JVCEA functions as an educational
body and a monitoring body for the member VASPs. Compliance with self-
regulatory AML/CFT rules and guidelines is prepared by the JVCEA. The JFSA, in
consultation with the JVCEA, has conducted outreach, some of which was done in
collaboration with other authorities, sharing information and ideas with VASPs that
would contribute to improving their AML/CFT compliance.
325. In addition, the JFSA:
Established the “Study Group on the Virtual Currency Exchange Business” in
March 2018 to examine institutional responses to various issues related to
the VASP business. In light of suggestions made on a report compiled by
the Group, the JFSA, in March 2019, submitted to the Diet a bill to amend
the acts. The amendment includes: the application of the Payment Services
Act and PTCP Act to service providers who conduct custodian service of
VAs; and the introduction of ex ante notification system concerning each
change of a type of VA dealt in by VASPs taking into account the anonymity
of VAs.
Prepared and publicized red flag indicators of suspicious transactions,
which are specific to VASPs, in April 2019. The indicators cover several
transactions where anonymization technology was utilized.
326. The amended Payment Services Act came into effect in May 2020 (enacted in May
2019). By this amendment, so-called crypto-asset custodial services, consisting of
managing (safekeeping/administrating) crypto-assets on behalf of customers and
transferring to designated addresses upon instructions from customers without
trading, etc., are also subject to the regulation
327. With regard to the travel rule, the JVCEA, which is a self-regulatory organization of
the Japanese VASP sector, aims to introduce the travel rule by revising its self-
regulatory rules and by setting the target date, and JFSA has been strengthening co-
operation with the JVCEA on this matter.
328. In March 2021, from the perspective of ensuring the proper and reliable execution
of their business, JFSA issued a request to JVCEA to proceed with consideration for
appropriate implementation of the travel rule, to resolve technical and operational
issues, and to establish the necessary systems to implement the travel rule.
329. JFSA has conducted extensive dialogue with the VASP industry in preparation for
the introduction of the travel rule. JFSA will continue to strengthen this dialogue and
monitor industry’s correspondence and progress with the travel rule as
appropriate.
Mexico
330. In Mexico, Federal Law for the Prevention and Identification of Operations with
Resources of Illegal Proceeds was reformed in March 2018 to establish as a
Vulnerable Activity the exchange of VAs made by entities other than Financial
Technology Institutions and Credit Institutions.
331. Likewise, in March 2018, Mexico published the Law to Regulate Financial
Technology Institutions, which indicates that Financial Technology Institutions may
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operate with VAs provided that they have the authorization of Bank of Mexico and
operate with the VA that it determinates.
332. Subsequently, in September 2018, the standards that establish the measures and
procedures in terms of AML/CFT related to VAs were published.
333. In March 2019, the Central Bank published the standards to define the internal
operations that the Credit Institutions and the Financial Technology Institutions
directly or indirectly pretend to carry out operations with VA.
334. The Central Bank said that VAs carry a significant ML/TF risk, due to the ease of
transferring VA to different countries as well as the absence of homogeneous
controls and prevention measures at the global level. However, it seeks to promote
the use of technologies that could have a benefit, as long as these technologies are
used internally between Financial Technology Institutions and Credit Institutions.
335. Finally, later in March 2019, the Disposiciones de carácter general a que se refiere el
Artículo 115 de la Ley de Instituciones Crédito were reformed, establishing the
measures and procedures that the credit institutions must follow to comply with
the obligations regarding AML/CFT related to VAs.
Norway
336. VASPs have been subject to the Norwegian AML Act and its obligations since
October 15, 2018. The relevant provision of the AML regulation reads as follows
(last updated in May 2021 – unofficial translation)::
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As of October 2021, nine VASPs are registered with the FSA and thus allowed to
provide their services within the Norwegian market. Many more have applied for
registration, but there has been a slight drop in received applications since 2020.
Many are also returning applicants, previously rejected due to shortcomings in their
AML policies and procedures. Moreover, the FSA continues to issue numerous orders
to cease and desist to those operating without permission in the Norwegian market,
which includes both domestic and foreign-based VASPs. The identification and closing
down of unregistered VASPs is a result of closer co-operation with the FIU, and
follows a joint preventive project from 2019. Furthermore, the FSA conducted its first
inspection of a VASP in late May 2021, and additional information has been gathered
from all registered VASPs to further map the general risk of the sector and the extent
of the services being provided. General experience, also based on attempts to register,
shows that the sector includes a range of actors with differences in size, complexity,
competence, experience with AML and compliance related work, as well as general
professionalism. Sweden
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337. In Sweden, the Financial Supervisory Authority has considered bitcoin and
ethereum as means of payment since 2013, meaning that professional exchange
services are therefore subject to a licensing regime62 and, following a successful
application for a licence, AML/CFT supervision. The regulation is not an explicit
AML/CFT regulation of VA exchange services as such (i.e., they are not specifically
mentioned in the law) but an implicit recognition that they should be regulated.
Once an exchange service obtains a licence, all activities (i.e., no matter the VA in
question) are subject to AML/CFT regulation and supervision. Thematic
supervision has been carried out. As a result, part of the sector has ceased its
operations. VASPs have submitted STRs to the FIU, and feedback from operational
authorities suggests that criminals are choosing to take their business to
unregulated exchanges elsewhere.
Switzerland
338. Switzerland adopted a technology-neutral approach and applied the existing
AML/CFT regulatory regime to VAs and the respective VASPs from an early stage in
the development of VA related activities in the market. Under this principle-based
regime, all activities involving financial intermediation and related to virtual assets
fall within the scope of the Anti-Money Laundering Act ("AMLA"). This includes
exchange activities between VA and fiat currencies and/or between one or more
forms of VA, any transfer activities of virtual assets, safekeeping and/or
administration activities of VAs or instruments enabling control over VAs and the
issuance of payment tokens.
339. Given the more and more decentralised models of transfer of assets whereby
several persons assist in disposing over the assets, a new criteria for defining a
service related to payment transactions in virtual currencies has been introduced
in the anti-money laundering ordinance. Therefore, apart from having power of
disposal over virtual currencies for the customer, a financial intermediary is
providing a service related to payment transactions in virtual currencies if it assists
the transfer of virtual currencies to a third party, insofar as it has an ongoing
business relationship with the customer. This includes for example decentralised
trading platforms that do not hold the private key of the client but facilitate the
transfer using a smart contract or wallet providers that facilitate a transaction even
if not holding a private key directly. This modification should ensure that
Switzerland’s AMLA is future proof with respect to VAs.
340. Before taking up such business in Switzerland, any natural or legal persons acting
as a financial intermediary and subject to AMLA must either hold a prudential
FINMA license (e.g. a banking license), become a member of a Supervisory
Organisation ("SO") or a self-regulatory organization ("OAR"), both of which are in
turn supervised by FINMA. The Anti-money laundering ordinance (“AMLO”) covers
financial intermediaries acting in or from within Switzerland.
341. FINMA has repeatedly warned consumers of specific risks of crypto assets and
related activities such as ICOs. In its supervision, FINMA focused early on VA-related
topics. As an example, FINMA communicated in 2019 its expectations regarding the
62
It is not quite a comprehensive licensing regime in the prudential sense of the word, but
for AML/CFT purposes it is, including fit and proper testing of owners and management
and an assessment of whether the business will be conducted pursuant to AML/CFT
regulation.
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travel rule. In Switzerland, financial intermediaries also have to fulfil the travel rule
requirements when offering transfers to or from an unhosted wallet. Furthermore,
the implementation of virtual asset related requirements by supervised entities (i.e.,
banks) has been assessed by FINMA.
United States
63
From a U.S. perspective, the term “digital assets” is a comprehensive term that refers to a
range of assets in the digital financial services ecosystem, including digital currencies—
both national digital currencies and digital currencies that are not issued or guaranteed
by a national government, such as convertible virtual currencies like bitcoin—as well as
digital assets that are securities, commodities, or derivatives thereof.
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64
The CFTC has determined that “virtual currency” is a commodity as that term is defined
by CEA section 1a(9). In re Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC
Docket No. 15–29, 2015 WL 5535736, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH)
paragraph 33,538 (CFTC Sept. 17, 2015) (consent order); In re TeraExchange LLC, CFTC
Docket No. 15–33, 2015 WL 5658082, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH)
paragraph 33,546 (CFTC Sept. 24, 2015) (consent order).
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65
Select examples of U.S. enforcement, investigative, and/or sanctions actions include: 2015
civil money penalty against Ripple Labs, Inc.; 2016 Operation Dark Gold; 2017 civil
money penalties against BTC-e and concurrent indictment of Alexander Vinnik; 2017 TF
case, U.S. v. Zoobia Shahnaz; 2018 sentencing of unlicensed bitcoin trader; and 2019
identification of digital currency addresses associated with OFAC SamSam designation.
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348. Similar to FinCEN, SEC, and CFTC authorities, DOJ has broad authority to prosecute
digital asset providers and individuals who violate U.S. law, even though they may
not be physically located inside the United States. Where digital asset transactions
touch financial, data storage, or other computer systems within the United States,
for example, the DOJ has jurisdiction to prosecute persons directing or conducting
those transactions. The United States also has jurisdiction to prosecute foreign-
located persons who use digital assets to import illegal products or contraband into
the United States or who use U.S.-located digital asset businesses or providers or FIs
for money laundering purposes. In addition, foreign-located persons who provide
illicit services to, defraud, or steal from U.S. residents may be prosecuted for
violations of U.S. law.
349. OFAC, typically in consultation with other agencies, administers U.S. financial
sanctions and associated licensing, regulations, and penalties, all of which relate to
digital assets as well as most other types of assets. OFAC has made clear that U.S.
sanctions compliance obligations are the same, regardless of whether a transaction
is denominated in digital assets (whether national digital currency or non-national
digital currency such as convertible virtual currency like bitcoin) or traditional fiat
currency, and U.S. persons and persons otherwise subject to OFAC jurisdiction are
responsible for ensuring they do not engage in unauthorized transactions
prohibited by OFAC sanctions. OFAC’s December 2020 enforcement action and
associated fine for failures related to VA services provides further confirmation of
this.66
66
. https://home.treasury.gov/system/files/126/20201230_bitgo.pdf.
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PART SIX:
PRINCIPLES OF INFORMATION-SHARING AND CO-OPERATION
AMONGST VASP SUPERVISORS
352. The FATF Recommendations encourage providing the fullest range of international
co-operation. INR. 15 states that countries should rapidly, constructively, and
effectively provide the widest possible range of international co-operation in
relation to money laundering, predicate offences, and terrorist financing relating to
VAs, on the basis set out in Recommendations 37 to 40. In particular, supervisors of
VASPs should exchange information promptly and constructively with their foreign
counterparts, regardless of the supervisors’ nature or status and differences in the
nomenclature or status of VASPs. Further information on the application of
Recommendations 37 to 40 to VAs is set out in Section III above.
Objectives
353. Each country must designate at least one competent authority as their supervisor
of VASPs for AML/CFT purposes. Other than specifying that the competent
authority cannot be a SRB, the FATF Standards do not specify who the competent
authority should be. Countries have designated a range of different authorities as
VASP supervisors, including financial services supervisors, central banks, securities
regulators, tax authorities, FIUs and specialist VASP supervisors. Some countries
have one single supervisor while others have multiple supervisors. Some countries
treat VASPs as a clearly-identifiable, specific category of business, while others
consider VASPs to be a sub-set of pre-existing business categories (e.g. as money
service businesses).
354. The FATF Standards make clear that supervisors should exchange information
promptly and constructively with their foreign counterparts, regardless of the
supervisors’ nature or status and differences in the nomenclature or status of
VASPs. Given the pseudonymous, fast-paced, cross-border nature of VAs,
international co-operation is all the more critical between VASP supervisors. To
facilitate co-operation between counterparts and exchange relevant information,
the FATF has developed Principles of Information-Sharing and Co-operation
between VASP Supervisors. These principles are intended to:
a. provide a common understanding of the type of supervisory information and
other background knowledge that will be useful for authorities to share with
each other and when to share such information;
b. outline possible triggers for proactive information sharing/requests, for
example when a cybersecurity incident has taken place that has potential
AML/CFT impact on other jurisdictions or where a foreign-based VASP is
potentially conducting unregulated VASP activity in a jurisdiction;
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Information exchange
4. Supervisors should exchange relevant information on VASPs with foreign
Supervisors, regardless of their status. To this end, Supervisors should have an
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Co-operation
17. In some instances, a primary Supervisor could be identified if the VASP has
significant proportion of its business operations in a jurisdiction. While
supervisors should work together to identify a primary Supervisor who could act
as a focal point through which to co-ordinate information sharing and co-
operation, such identification is not mandatory and does not absolve other
Supervisors of the responsibility to supervise the VASP in their respective
jurisdictions.
18. Supervisors should use the most efficient means to co-operate. If bilateral or
multilateral agreements or arrangements, such as a Memorandum of
Understanding (MOU), are needed, these should be negotiated and signed in a
timely way with the widest possible range of foreign Supervisors in the context of
international co-operation to counter money laundering, associated predicate
offences and terrorist financing.
19. Supervisors should be able to conduct queries on behalf of foreign Supervisors,
and exchange with these foreign Supervisors all information that they would be
able to obtain if such queries were carried out domestically.
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20. When requesting co-operation, Supervisors should make their best efforts to
provide complete, factual and, as appropriate, legal information including the
description of the case in concern. This includes indicating any need for urgency,
to enable timely and efficient execution of the requests for co-operation.
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Countries and financial institutions should identify and assess the money laundering or terrorist
financing risks that may arise in relation to (a) the development of new products and new business
practices, including new delivery mechanisms, and (b) the use of new or developing technologies for
both new and pre-existing products. In the case of financial institutions, such a risk assessment
should take place prior to the launch of the new products, business practices or the use of new or
developing technologies. They should take appropriate measures to manage and mitigate those
risks.
To manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual
asset service providers are regulated for AML/CFT purposes, and licensed or registered and subject
to effective systems for monitoring and ensuring compliance with the relevant measures called for
in the FATF Recommendations.
1. For the purposes of applying the FATF Recommendations, countries should consider
virtual assets as “property,” “proceeds,” “funds,” “funds or other assets,” or other
“corresponding value.” Countries should apply the relevant measures under the FATF
Recommendations to virtual assets and virtual asset service providers (VASPs).
2. In accordance with Recommendation 1, countries should identify, assess, and
understand the money laundering and terrorist financing risks emerging from virtual
asset activities and the activities or operations of VASPs. Based on that assessment,
countries should apply a risk-based approach to ensure that measures to prevent or
mitigate money laundering and terrorist financing are commensurate with the risks
identified. Countries should require VASPs to identify, assess, and take effective action
to mitigate their money laundering and terrorist financing risks.
3. VASPs should be required to be licensed or registered. At a minimum, VASPs should
be required to be licensed or registered in the jurisdiction(s) where they are created.1
In cases where the VASP is a natural person, they should be required to be licensed or
registered in the jurisdiction where their place of business is located. Jurisdictions
may also require VASPs that offer products and/or services to customers in, or
conduct operations from, their jurisdiction to be licensed or registered in this
jurisdiction. Competent authorities should take the necessary legal or regulatory
measures to prevent criminals or their associates from holding, or being the beneficial
owner of, a significant or controlling interest, or holding a management function in, a
VASP. Countries should take action to identify natural or legal persons that carry out
VASP activities without the requisite license or registration, and apply appropriate
sanctions.
4. A country need not impose a separate licensing or registration system with respect to
natural or legal persons already licensed or registered as financial institutions (as
defined by the FATF Recommendations) within that country, which, under such
license or registration, are permitted to perform VASP activities and which are
already subject to the full range of applicable obligations under the FATF
Recommendations.
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5. Countries should ensure that VASPs are subject to adequate regulation and
supervision or monitoring for AML/CFT and are effectively implementing the
relevant FATF Recommendations, to mitigate money laundering and terrorist
financing risks emerging from virtual assets. VASPs should be subject to effective
systems for monitoring and ensuring compliance with national AML/CFT
requirements. VASPs should be supervised or monitored by a competent authority
(not a SRB), which should conduct risk-based supervision or monitoring. Supervisors
should have adequate powers to supervise or monitor and ensure compliance by
VASPs with requirements to combat money laundering and terrorist financing
including the authority to conduct inspections, compel the production of information,
and impose sanctions. Supervisors should have powers to impose a range of
disciplinary and financial sanctions, including the power to withdraw, restrict or
suspend the VASP’s license or registration, where applicable.
6. Countries should ensure that there is a range of effective, proportionate and
dissuasive sanctions, whether criminal, civil or administrative, available to deal with
VASPs that fail to comply with AML/CFT requirements, in line with Recommendation
35. Sanctions should be applicable not only to VASPs, but also to their directors and
senior management.
7. With respect to preventive measures, the requirements set out in Recommendations
10 to 21 apply to VASPs, subject to the following qualifications:
8. (a) R.10 – The occasional transactions designated threshold above which VASPs are
required to conduct CDD is USD/EUR 1 000.
9. (b) R.16 – Countries should ensure that originating VASPs obtain and hold required
and accurate originator information and required beneficiary information2 on virtual
asset transfers, submit3 the above information to the beneficiary VASP or financial
institution (if any) immediately and securely, and make it available on request to
appropriate authorities. Countries should ensure that beneficiary VASPs obtain and
hold required originator information and required and accurate beneficiary
information on virtual asset transfers, and make it available on request to appropriate
authorities. Other requirements of R.16 (including monitoring of the availability of
information, and taking freezing action and prohibiting transactions with designated
persons and entities) apply on the same basis as set out in R.16. The same obligations
apply to financial institutions when sending or receiving virtual asset transfers on
behalf of a customer.
10. Countries should rapidly, constructively, and effectively provide the widest possible
range of international co-operation in relation to money laundering, predicate
offences, and terrorist financing relating to virtual assets, on the basis set out in
Recommendations 37 to 40. In particular, supervisors of VASPs should exchange
information promptly and constructively with their foreign counterparts, regardless
of the supervisors’ nature or status and differences in the nomenclature or status of
VASPs.
1 References to creating a legal person include incorporation of companies or any other
mechanism that is used.
2 As defined in INR. 16, paragraph 6, or the equivalent information in a virtual asset context.
3 The information can be submitted either directly or indirectly. It is not necessary for this
information to be attached directly to virtual asset transfers.
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Glossary
A virtual asset is a digital representation of value that can be digitally traded, or
transferred, and can be used for payment or investment purposes. Virtual assets do
not include digital representations of fiat currencies, securities and other financial
assets that are already covered elsewhere in the FATF Recommendations.
Virtual asset service provider means any natural or legal person who is not covered
elsewhere under the Recommendations, and as a business conducts one or more of
the following activities or operations for or on behalf of another natural or legal
person:
exchange between virtual assets and fiat currencies;
exchange between one or more forms of virtual assets;
transfer1 of virtual assets;
safekeeping and/or administration of virtual assets or instruments enabling
control over virtual assets; and
participation in and provision of financial services related to an issuer’s offer
and/or sale of a virtual asset.
_______________________________________________________________________
1 In this context of virtual assets, transfer means to conduct a transaction on behalf of
another natural or legal person that moves a virtual asset from one virtual asset address
or account to another.
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